The FSA concluded that poor compliance exists within both distributors and underwriters of PPI products. In particular there is increased concern about policies often sold alongside revolving credit, unsecured loans, mortgages and other secured finance in both the prime and sub-prime market.
The UK regulator has made it clear to the industry that they will continue their investigations through thematic work early next financial year to assess the level of compliance improvements across the industry. The Dear CEO letters, dated 4th November, stress that firms must respond to their supervisors detailing the actions being taken by the 19th December.
The FSA also indicate that firms need to consider whether customers are sold other insurance products, either on an advised or non-advised basis, where they are ineligible to claim benefits.
Huntswood head of consulting, Eurfron Jones, commented: “The FSA has stated that they intend to measure improvements in compliance from as early as April 2006 and this leaves firms a relatively short period of time to consider the implications and take the necessary actions. It is essential that when firms respond to their supervisor by the 19th December, they have robust plans and adequate resources to undertake a complete review of all aspects of PPI sales.”
Huntswood highlights the key risks to the industry as risk to brand reputation; financial risk and embedded risk. It has been suggested that up to 10 per cent of the profits of same major lenders could be under serious threat.
Jones continued: “The issues that revolve around PPI selling practices and eligibility for consumers should not be perceived by the industry as yet another regulatory pressure, but more as an opportunity for firms to improve their practices and treat their customers in a way that promotes long term business and customer satisfaction.”
An industry appraisal report authored by OmniCheK in September 2005 revealed that personal borrowing was at record levels and that distributors of PPI were using aggressive selling tactics to drive up sales. The appraisal report estimates that there are some 24 million policies currently generating in the region of £6bn of gross premium income per annum.
