For years I’ve maintained that the product itself is sound – apart from single premium cover – and when sold properly will provide a safety net and peace of mind for those who are unable to continue with their loan and credit repayments.
The CC’s feedback offers no new radical insights, however, it is the most comprehensive investigation of the market so far, despite delaying tactics from some parties who have been unable to retrieve information from their databases or provide data in the format required.
It suggests ‘a significant degree of countervailing buyer power is being exercised by distributors’ and questions why commission levels for PPI are higher than other general insurance products – between 50-80 per cent for personal loan PPI and 40-65 per cent for mortgage.
The CC believes that the cost of PPI, in some instances, is higher than the interest paid on loans, there’s limited competition at retail level and it is not convinced, as many would suggest, that credit provision and PPI sales are the same market. It’s also concerned that advertised credit APR does not include PPI costs and pre-purchase information is poor.
I believe the right products are in the wrong hands and this view, will in time, be borne out by further CC research. All of the issues raised by consumers, such as lack of pre-purchase information, confusion over jargon and uncertainty over policy cover can be addressed by independent PPI providers.
The most interesting area for investigation is around whether distributors’ PPI profits prop up losses made at credit product level. Given the current credit crunch, let’s hope the CC’s concerns are unfounded – otherwise the ramifications will be huge.
I look forward to the CC’s proposed remedies; due second half 2008 and the final report in November/December 2008.
Yours sincerely
Sara-Ann Burgess
Director
British Insurance
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