The Competition Commission (CC) is planning a dramatic crackdown on the payment protection insurance (PPI) industry after it discovered that sellers are overcharging customers to the tune of £1.4 billion every year.
Provisional findings from a CC report on PPI found that, because the insurance is almost always sold at the same time that the consumer takes out a loan or other type of credit, there is a severe lack of competition in the market.
This is allowing lenders to charge their customers massively inflated premiums for cover – our research shows that lenders who automatically tack PPI onto a loan charge up to five times more.
Sellers will start feeling the pressure
In a bid to reduce the cost and ensure customers are treated fairly, the CC is considering imposing a wide array of measures on PPI sellers.
Chief among these is a ban on selling PPI at the same time as a credit product. Such a move would greatly improve competition in the market, allowing a customer to shop around for the best value product.
The CC is also mulling a ban on the sale of costly single-premium policies, where the whole cost of the loan is paid for up front with money that is also borrowed at the same interest rate as the loan.
Treating the customer fairly
Other measures include the possible introduction of a temporary price cap to reduce prices, and additional proposals to enhance the ability of suppliers to compete more effectively with the company selling PPI with a loan or other credit product.
According to CC Deputy Chairman Peter Davis, all the measures under consideration are aimed at providing better information to customers about what they are buying and the price of the PPI relative to the price of loans, as well as improving their ability to compare PPI products.
Sellers aren’t competing
“We’ve found serious problems with the PPI market and customers are paying for the lack of competition,” says Davis.
“The way PPI is sold as an ‘add-on’ to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.
“Distributors don’t appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other.”
