New rules published by the Competition Commission (CC) see lender restrictions on payment protection insurance (PPI) at point of sale. These are detailed measures which underscore what has believed to have been a lack of competition in this industry, as well as insufficient disclosure of information. Obviously introducing competitive measures into the market will be of benefit to the consumer as well as the industry - we all understand competitive, well-structured markets to be a good thing.
The payment protection insurance market makes provision for a significant need and there is no doubt about this - it is insurance which covers periods of unemployment, illness and even following accidents. The new Competition Commission document compensates for serious failings within the PPI industry at point of sales and the aim is to establish improvement in operations as well as better established consumer protection. Market interventions are subsequently being established and the new framework of rules also means improved outcomes. New rules include:
- Prohibition on sales of Payment Protection Insurance at credit point of sale until such time as seven days or more has passed after the supply of a personal PPI quote.
- The requirement to provide a personal PPI quote (valid for 7 days at least), which sets out all costs as well as all details of the PPI cover provided
- The provision of information in terms of marketing material. For example, that which sets out clearly that PPI is optional and can be purchased from other providers - all costs with regards to the PPI products also needs to be detailed, as well as key message of the products.
- The requirement to provide claims ratios information to all potential customers or interested parties who request this information.
- No single premium PPI policies are to be sold - this is prohibited.
- An obligation on the insurer to provide annual reviews - these to be inclusive of increased pricing as well as the right of the insured to cancel the policy.
These CC orders were made effective on 6th April 2011 however, two phases of introduction will take place for the main obligations - 1st October is the second date. These dates coincide with common government legislation and regulations commencement dates annually; which also offers enough time for the implementation of changes for providers. Although some requirements only fall into place on the 1st October 2011; point of sales prohibitions will only become valid on 6th April 2012.
Lenders also offer other types of insurance when taking out a loan, such as life insurance for mortgage protection purposes. It is often the case that these plans are overpriced for the very same lack of competition reasons and should also be reviewed by the CC.
There is a real need for PPI for those who would have difficulty keeping up with loan repayments should incapacity or redundancy strike. Drewberry Insurance has compiled data, on the chances of suffering illness. This information is derived from various charitable health associations. It is vital to be aware of risks and take precautions to avoid illness, just as much as it is vital to protect income:
- Cancer - there are more than 200 types, many preventable, and in the UK 298,000 people are diagnosed with cancer annually - a ratio of 1 in 200 people
- Heart Attack - approximately 124,000 heart attacks take place every year. The British Heart Foundation reports that 1.5 million people have suffered a heart attack, and nearly 2.7 million people live with heart disease
- Stroke - 150,000 people suffer strokes annually in the UK; the Stroke Association reports approximately 1/3 are likely to be left disabled. Currently this condition has a greater disability probability than any other medical condition.
When considering PPI it is also worth considering income protection insurance which, unlike PPI, can payout until retirement of you are unable to return to work due to illness or injury, rather than just providing up to 12 months cover.
Tom Conner
Drewberry Insurance
Drewberrymortgageinsurance.co.uk
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