Competition Competition report reveals £1.4bn overcharging for loans protection.
The Competition Commission’s proposed ban on the sale of payment protection insurance (PPI) with loans could destroy the PPI market, the ABI has warned.
A provisional report released last week by the Competition Commission (CC) revealed that the 14 million consumers who take out PPI each year are being overcharged by more than £1.4bn, due to lack of competition in the market.
But Nick Starling, the ABI’s director of general insurance and health, said the PPI industry should not be judged retrospectively. He said the work that the ABI and the FSA have been doing over the past two years to clean up the industry, such as publishing consumer guidance and creating new Insurance Conduct of Business rules, needed more time to produce results.
He said: “With all protection products, the issue always raised is that people are turned down for claims. So the Competition Commission is looking to the past when instead it really ought to let these changes bed down.”
But Doug Taylor, personal finance campaigns manager for consumer body Which?, said: “PPI is generally a bad product, inappropriately sold. We’ve been saying it for 10 years and we’re delighted that we’ve been vindicated. Our research shows that in the past five years, up to two million policies have been mis-sold. Surely it’s time to stop talking and start cleaning up this industry, once and for all?”
Other mainstream protection products include life, income protection and critical illness cover. Income protection and critical illness offer larger pay-outs than PPI, but the products tend to be more expensive and more difficult to underwrite. Therefore, PPI is often seen as an easier option for people, particularly during the credit crunch.
Starling said: “This is a woefully under-protected society and people are unaware what would happen if they’re ill or the breadwinner and can’t work anymore. You should have protection and if you regulate PPI out of existence, there will be people taking out loans who will become exposed.”
Stuart Glendinning, managing director of price comparison site, moneysupermarket.com, added: “Data from the Competition Commission shows that between 10% and 20% of people using a price comparison website to find a personal loan will choose PPI. This compares with a 40% take-up of PPI when people buy a loan direct from a provider.”