When is the consumer press going to publish some good news about payment protection insurance (PPI)? It often contains reports of how having other insurance cover in place saved home owners from disaster at times of flood, or if they have been hit by subsidence or some other insurable risk. When was the last time you read anything positive about PPI? The latest attack on this sector comes from the This is Money website. It says a number of insurance companies are refusing to comply with the rules in relation to PPI that were introduced by the Financial Services Authority (FSA) back in March. This relates to how customers are treated when they cancel their policy and receive a reasonable refund.
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Refunds
This is Money has discovered that refunds for PPI customers generally fall below the expected payment amount. It is unclear from the research if this refers to the recent rule changes that apply to single premium PPI policies.
The FSA was successful in committing insurers to agree to a consistent approach on single premium PPI, where customers pay a single upfront fee for cover against accident, sickness and unemployment. The agreement saw companies selling these policies no longer including nil refund terms in new contracts and not enforcing those in contracts with existing customers. Customers affected were to be contacted and told what refund they will be entitled to should they choose to cancel their cover. This seemed a sensible compromise, especially in light of the recent criticism directed at the single premium sector.
Sad state of affairs
If true, the This is Money research is indicative of a sad state of affairs – especially as it seemed that industry trade body the Association of British Insurers (ABI) had persuaded the PPI sector to accept improvements to policies last year, such as premium refunds on early loan repayment. But according to the news site, complaints over low refunds on cancelled PPI policies are at a high level.
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Then we have consumer watchdog Which? claiming a mystery shopping exercise it conducted discovered that in 24 out of 41 cases the lenders automatically added PPI costs into quotes that were provided to consumers, which meant that the consumers weren’t necessarily aware that they were paying for protection on their finance. Again, there appears to be some inconsistency among industry players with the consumer group citing two major high street lenders as offenders and other high street lenders that provided consumers with two quotes, one with and one without PPI to customers.
Proactive
However, the barrage of unremitting bad news stories associated with this type of cover suggests that the ABI needs to be proactive and set out the benefits of this cover and use its influence to get some ‘good news’ stories placed in the press. Because good news stories there are aplenty, and more will come to the fore – especially in the mortgage sector as higher interest rates conspire to tip borrowers over the edge. We need to shout about how this insurance helps ordinary people out of otherwise financially crippling situations. Although some issues remain over how mortgage payment protection insurance (MPPI) is sold, let me quote some figures as to why the sale of this protection product must be an important factor when advising on a mortgage.
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The number of mortgage repossessions rose from 8,140 in the first half of 2006 to 8,860 in the second half, according to figures released by the Council of Mortgage Lenders (CML). The total for 2006 was 17,000 – 65 per cent higher than in 2005. The total number of repossessions in 2005 was 10,250. This was 70 per cent higher than in 2004.
The CML expects short-term arrears to rise during the course of 2007, mostly because of the effects of higher interest rates. The effect may be more pronounced in the second half of the year than the first. Should interest rates hit 6 per cent, many more borrowers are expected to fall over the edge. It also
expects the total number of mortgages at least three months behind with their payments to rise from around 105,000 last year to 130,000 this year. Furthermore, the average price of a property is around 5-10 per cent more than it was a year ago, according to most estimates.
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The public needs to be educated about the importance and significance of PPI in today’s economic climate. Furthermore, many mortgage intermediaries remain unconvinced about the suitability of some of these products, or if even recommending them to their clients could jeopardise their professional standing in the eyes of the client.
This is a remarkable situation to be in. The insurance industry has been guilty of permitting some dubious practices to persist; however, even more damning, it has been complicit in overseeing the rubbishing of the reputation of a product designed to defend the financial interests of borrowers. This reputation needs to be repaired as quickly as possible.
