The problems with PPIMis sold PPI

The profit each year from PPI is estimated to be £5 billion

Although there are clear rules that any firm or advisor selling a PPI policy has to follow, mis-selling is still a big problem. Which? research shows that more than a million policies have been mis-sold.

PPI on credit cards

With credit cards, Which? has found that almost 13% of people surveyed believed getting PPI was a condition of their credit card deal, or that their application was more likely to be accepted if they had it.

According to the Competition Commission, credit card PPI is the second largest slice of the PPI industry, but only 11% of claims are successfully paid out, so it's big business for providers.

Big profits on bad products

PPI is big business. In October 2006, the Office of Fair Trading (OFT) estimated there were approximately 20 million policies in force, with between 6.5 and 7.5 million further policies being sold each year. The profit the industry makes each year from the sale of PPI policies is estimated to be £5 billion.

And to make matters worse, the OFT found only 20% of the money collected in premiums is ever paid out in claims. That’s a shockingly low figure compared to other general insurance products such as car insurance, where 82% is paid out, house insurance at 54%, pet insurance at 72% and medical insurance at 80%.

Overcharged by £1.4 billion a year

There was enough evidence to convince the OFT that the PPI market wasn't working for consumers. In February 2007, the OFT referred the issue to the Competition Commission.

In June 2008, the Competition Commission published its provisional findings on the PPI market and concluded that ‘Companies face little or no competition when selling Payment Protection Insurance to their credit customers, and as a result customers appear to be overcharged by over £1.4 billion a year.’

The regulator for financial services – the Financial Services Authority – has also carried out extensive research into the selling of PPI, resulting in several providers being fined. It published its findings in three reports. The latest, in September 2007, shows that despite previous warnings, many firms are still failing to treat customers fairly.

More information

The Financial Services Authority website includes details of their research into the sale of PPI.

You can find information on the OFT's referral of the PPI market to the Competition Commission on the OFT website.