Knowledge Centre
29th January 2009
Businesses who offer insurance for loans and other forms of credit will face tighter regulation, after the latest action by the Competition Commission.
The commission's final report into Payment Protection Insurance (PPI) sets out measures to reduce the advantage for leading providers.
PPI can cover the cost of repayments should the borrower lose their job, and is often sold at the same time as the credit card, mortgage or loan. However, in recent years, the PPI market has been strongly criticised by consumer groups, watchdogs such as the Financial Services Authority, and the Competition Commission.
"The 'point-of-sale' advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices", said Peter Davis, chairman of the enquiry.
Acknowledging that there may now be "a greater need for consumers to obtain the cover that PPI - and other protection products - can provide", Mr Davis said that the commission's new measures were needed to improve value and choice for consumers.
The new rules are likely to come into force in 2010, and will require a seven-day period between the credit being approved and PPI being offered.
There will also be a ban on 'single-premium' policies - where the borrower pays interest on the insurance premium as well as on the loan. Last week, several major banks announced they were to stop selling single-premium PPI products from the end of January.
However, the Association of British Insurers (ABI) has said it is concerned by the measures.
The ABI's Nick Starling said that the point-of-sale ban carried "significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more".
Yesterday, the ABI released figures showing that there were 19,105 new unemployment claims on PPI policies last November - up 118% on the same month the previous year.
"This massive leap in claims shows that PPI is helping many people through a difficult financial period," said Mr Starling.
IMAGE Ben Birchall/PA Wire
Payment Protection Insurance: new rules for industry
The commission's final report into Payment Protection Insurance (PPI) sets out measures to reduce the advantage for leading providers.
PPI can cover the cost of repayments should the borrower lose their job, and is often sold at the same time as the credit card, mortgage or loan. However, in recent years, the PPI market has been strongly criticised by consumer groups, watchdogs such as the Financial Services Authority, and the Competition Commission.
"The 'point-of-sale' advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices", said Peter Davis, chairman of the enquiry.
Acknowledging that there may now be "a greater need for consumers to obtain the cover that PPI - and other protection products - can provide", Mr Davis said that the commission's new measures were needed to improve value and choice for consumers.
The new rules are likely to come into force in 2010, and will require a seven-day period between the credit being approved and PPI being offered.
There will also be a ban on 'single-premium' policies - where the borrower pays interest on the insurance premium as well as on the loan. Last week, several major banks announced they were to stop selling single-premium PPI products from the end of January.
However, the Association of British Insurers (ABI) has said it is concerned by the measures.
The ABI's Nick Starling said that the point-of-sale ban carried "significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more".
Yesterday, the ABI released figures showing that there were 19,105 new unemployment claims on PPI policies last November - up 118% on the same month the previous year.
"This massive leap in claims shows that PPI is helping many people through a difficult financial period," said Mr Starling.
IMAGE Ben Birchall/PA Wire
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