Was the ban on payment protection insurance (PPI) sales by credit providers at the point at which credit is taken out a victory for consumers?
Sara-Ann Burgess, Burgesses
It is widely recognised that independent providers offer a better deal for consumers with premiums being around 10 times cheaper for loan protection, four times for mortgage and five times for income. The seven-day ban gives consumers time to shop around for PPI, plus it gives independent providers a greater ‘window of opportunity’ for the provision of cover.
Consumers will be able to compare the product information from their credit provider with other firms’. There will be increased transparency as all providers will have to cost premiums per £100 of benefit.
More effort will be required from the FSA and the Association of British Insurers to promote the ways that consumers can compare deals, plus they should warn about not falling victim to pressurised selling tactics.
It is a concern that credit providers might hassle customers because they will be under increased pressure to maintain profit levels and the costs associated with producing this PPI literature are going to have to be recouped somewhere.
As well as independent firms, mortgage intermediaries will also benefit. The Competition Commission found that consumers were more likely to trust IFAs when it came to choosing mortgage payment protection insurance (MPPI), so for those who do not want to shop around, advisers will be invaluable.
Emma Peplow, Association of Mortgage Intermediaries
Consumers’ interests have never been served when their only choice was whether to purchase their credit provider’s PPI product. However, the Association of Mortgage Intermediaries (AMI) repeatedly advised the Competition Commission that a lack of understanding in the role intermediaries play in MPPI sales would end in detriment to consumers and the industry.
In November, 9,105 new unemployment claims were submitted, 118% higher than a year before, demonstrating a need for this protection. With two million people unemployed, and predictions that this will increase , who will pick up the increasing cover needs of these consumers?
Advisers and intermediaries add value to consumers, enhance the shopping-around process, and provide recommendations based on needs and eligibility. The issue of inappropriate cover may be exacerbated if consumers place their trust in stand-alone web-based offerings and fail to receive advice. Indeed, many of these firms masquerade as brokers and as ‘independent’ when they are far from it.
With confusion surrounding state support, IFAs are ideally placed to give appropriate advice, based on the products available to them. However, in shopping around, it is internet-based firms with big budgets that might win and consumers who ultimately lose.
Peter Le Beau, Le Beau Visage
It is unlikely that any of the millions of consumers who have bought PPI will march on Downing Street to protest at the new rules from the Competition Commission. The simple fact is that, prevented from buying PPI at the point at which credit is taken out, most people will do nothing. The absence of pressure to take out a protection policy when consumers take out credit will sound the death-knell of the PPI product. However, unless something very surprising happens, it is unlikely that this vacuum will be immediately filled by any other protection product. Most protection products have to be sold to people. It is only occasionally that individuals realise their obligations in what direct sales trainers used to call ‘magic moments’ such as marriage, moving house or the birth of a child.
PPI creates these moments because it sells on the back of a very attractive purchase that someone is keen to make and, in their euphoria, it can seem like a great idea to buy the insurance that is rarely considered in cost terms. Any delay in this, as the research by Axa through Decision Technology showed last year, and a sale is highly unlikely. Opportunities to sell longer-term protection will only arise if the industry can make the public aware of how financially vulnerable they are to the consequences of death or ill-health. Unfortunately, the demise of PPI is unlikely to do that.
Matt Morris, LifeSearch
It is imperative consumers who would have bought PPI protection do not go without cover. There is now an opportunity to ensure they buy genuine, good value products that pay out when they should. Importantly though, short-term income protection (IP) must not get tarred with the same brush as PPI. We need a simple-to-buy short-term IP product. Combined with a pan-industry advertising campaign, the market will hopefully find potential for growth, recession permitting.
The banning of credit providers selling PPI at the point at which credit is taken out opens up an opportunity for innovative products to fill the gap it leaves. Real Life Cover is a product that could fit the bill as it is the only other product to offer a comprehensive pre-packaged cover in one buying decision. It is simple to sell, like PPI, but offers far better protection. Because it has to be underwritten, mass sales are probably some way off but there is no reason why it would not work as a replacement for PPI.
Hopefully this will also create the chance for another IP push with products that fill the need of PPI consumers. Sales levels have been poor for too long and IP now has the chance to reach consumers who would normally have had PPI forced upon them. IP is the preferred option so the industry should make the most of this opportunity to re-establish its credentials.
