The insurance market has had the spotlight shone directly in its face over recent months, with payment protection insurance (PPI) and mortgage payment protection insurance (MPPI) most notably feeling the glare.
Following a Financial Services Authority (FSA) investigation into PPI after accusations of poor practices in the sector, the regulator took the decision to refer the market to the Office of Fair Trading (OFT) which then referred the sector – along with MPPI – to the Competition Commission (CC).
However, since the CC began its investigation, very little has been said about MPPI; a market that most organisations agree is completely separate from PPI.
A regulator’s study
The FSA took its original decision to examine the insurance sector more closely following accusations of poor selling practices, with costs and the provision of advice both highlighted as causes for concern, and recently the CC confirmed that it would be extending its deadline for feedback, indicating that price and risk were central to its market study.
Peter Davis, inquiry chairman, said: “After examining a substantial amount of evidence, we think there are some areas we need to explore further. We are far from making up our minds but we are focusing on the amount of competition for PPI that distributors face at the retail level.”
Since the FSA began its own initial investigation into PPI and MPPI, a number of individuals and firms have been handed fines for failings in their practices and giving advice.
Capital One was fined £175,000, while Loans.co.uk was fined £455,000. The fine handed out to Loans.co.uk centred on the fact that its customers were not given enough information about the products to make a proper, informed decision and in a follow up review into PPI selling standards, the FSA admitted that practices still needed to improve.
Speaking at the time of the review, in September 2007, Clive Briault, managing director of retail markets, said: “We have, on a number of occasions, set out clearly our requirements for the selling of PPI. While some progress has been made by the industry, we are extremely disappointed that some firms have still made little progress in improving their sales practices.
“The right PPI can provide valuable protection for consumers, but they are entitled to expect that they will be treated fairly by firms when they buy it. They must be told how this product works, what it covers, and how much it costs. At the moment, too many firms are not meeting these requirements.
“We will now strengthen our action against firms who fail to treat customers fairly when selling PPI.”
Exclusion
However, in these and other reviews, industry commentators have pointed to the fact that MPPI has failed to be mentioned, leading many to call for its exclusion from the CC’s review.
Shane Craig, managing director at Paymentcare, expressed his disappointment at the recent PPI investigation and gave his backing for the exclusion of MPPI. “The mis-selling of PPI was a sitting duck for investigation and it will be a red letter day for consumers when reforms eventually filter down to protect the consumers who have been so badly served. But the inclusion of MPPI in the study was a mistake and, I believe, has damaged the reputation of a valuable product,” he said.
“It’s worth remembering that the FSA’s most recent thematic work on PPI reiterated its earlier findings that sales of regular premium prime MPPI, on an advised basis, were most likely to meet the review’s requirements – no mean compliment in the current climate. The main culprit of the mis-selling furore, as stated more than once in the FSA’s September 2007 report, is ‘single-premium PPI sold alongside unsecured personal loans’.”
Craig added that the blame for the inclusion of MPPI should lie with the OFT. “The message that the source of concern is unsecured personal loans is loud and clear, but by deciding to include MPPI in its referral of the market to the CC in February this year, the OFT has contributed to a growing distrust in MPPI with borrowers, fuelled by swathes of bad press.”
No news
It seems clear that the decision to include MPPI as part of the market study was misinformed and mis-timed. While no business model or sector is perfect, the distinct differences between MPPI and PPI should have made it clear to many that the two were separate and deserved to be treated as such.
The industry must wait until Spring 2008 at the earliest for any further update on the CC review, but already the industry is bracing itself for more bad news about PPI, and no news on MPPI.
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