The £5.5 billion payment protection insurance (PPI) market is to face a full investigation after an initial probe found it was failing consumers.
The (OFT) announced today that it will refer the PPI market to the .
It said its own investigation found the insurance gave customers a poor deal and less protection than they thought they had.
PPI is sold by many banks and credit card companies when you take out a new loan or card. It’s designed to cover your repayments if you become unable to work due to certain illnesses or injuries, or if you lose your job.
Around 7 million such policies are taken out each year and the sector is estimated to be worth £5.5 billion.
The OFT launched a study into PPI in April and its Chief Executive, John Fingleton, said today: ‘Following the work we have undertaken it is clear that many customers are failed by PPI – insurance which gives them a poor deal and often less protection than they think.
‘There is limited evidence the industry is taking steps to improve the situation, but we believe they will not make major improvements to competition in the market.’
The OFT said that PPI can provide worthwhile cover for some consumers but added that the way they bought PPI, their understanding of the product and the quality of information about it hinders competition.
Just 15 per cent to 20 per cent of people with PPI claim on their policies compared with 74 per cent for car insurance and 55 per cent for household cover.
The OFT report added: ‘…with no evidence to suggest costs are high, it seems reasonable to assume that distributor profitability is sizeable. Evidence on commission rates, which look to be high compared with other general insurance products, reinforces this conclusion.’
Which? finance campaigner ‘Pula Houghton said: ‘Which? has said for years that bad practice is rife in the PPI market. It is simply not delivering adequate protection for consumers. Policies are complex, often inappropriate and offer poor value.
‘Separately from the OFT, the Financial Services Authority (FSA) has just published the results of visits it made to 40 firms selling PPI and it found several areas of concern. It’s disappointing that the FSA did not name and shamed the companies which exhibited bad practice. Consumers will be left with no idea which firms aren’t complying with regulations, leaving them vulnerable. It also means the provider is in no way accountable to its customers.’
Which?’s PPI tips
Which?’s tips for anyone thinking of buying PPI are:
- if you work part-time or are self-employed, or if you have a pre-existing medical condition and have to give up work, you will almost certainly be unable to make a claim. Unfortunately, though it is these groups of people who need the most protection
- shop around. An income protection policy from an independent provider is likely to be a better bet as it will provide a regular monthly income if you are unable to work for any reason
- alternatively, calculate how much you would save a month by not buying PPI and put that money into a savings account to be used to meet loan repayments if you fall ill or lose your job.