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The Scotsman
June 6th
No surprises in report on the rip-off that is PPI
selling
IF PAYMENT protection insurance (PPI) wasn't sold primarily by the UK's
favourite beacons of fairness and integrity – its high street banks – it
would be dismissed as a rip-off perpetrated by cowboys.
Because a rip-off is what it all too often is, and it didn't need the
Competition Commission's report this week to confirm that.
PPI, sold alongside debt such as loans, mortgages and credit cards, is
designed to cover repayments should the policy holder be made redundant or
be unable to work because of sickness or an accident.
The initial findings from the commission's investigation into the £4.4
billion-a-year sector found that customers are overcharged by more than
£1.4bn a year for the cover. What's more, just 14 per cent of claims pay
out, far lower than for any other form of insurance.
While standalone PPI policies offer better value and are appropriate for
some customers, most are sold by banks alongside the debt they are designed
to cover to customers for whom the policy is unsuitable.
For instance, thousands of policies have been taken out by people who would
not be able to claim on them anyway, such as pensioners and the long-term
sick.
Consumer groups lined up to condemn the product this week, with several
calling for this type of insurance to be banned.
But while serious action is needed to prevent more consumers – who are
merely trying to be responsible– from being ripped off, banning the product
is perhaps excessive.
The problems with it are clear enough and so, therefore, are the solutions.
For instance, they should no longer be sold on a single premium basis. This
means that a lump sum covering the cost of the insurance is added to the
amount you have borrowed, so you pay interest on both the premium and the
loan.
Similarly, mis-selling has been widespread, partly because customers are
not given the full details of what they are buying, or informed of the
alternatives available.
In most cases, for example, income protection is not only more suitable,
but cheaper and more comprehensive.
Arguably, if people knew the full details of PPI and were able to compare
it with the other types of cover they could buy, very few would opt for PPI.
Preventing banks and lenders from selling PPI at the point of sale of the
associated product – as the Competition Commission is considering – would
also make the market far more competitive.
Given that some consumer bodies have been calling for the reform of PPI for
nearly a decade, the Competition Commission's report surprised no one.
But until wide-ranging changes are made to the product, the great rip-off
will continue.
AT THE launch of the first Council of Mortgage Lenders report specifically
covering the Scottish housing market, it was remarked that if the event had
been held 18 months ago, no-one would have turned up.
Instead the publication of the new figures, which confirmed the relative
health of the housing market in Scotland compared with the rest of the UK,
attracted plenty of interest.
But while no-one's doing a lap of honour because Scotland has apparently
escaped the worst of it, the response from some quarters carried a hint of
complacency.
It's a bit early for that. The supply of mortgages has dried up alarmingly
over the past year and there's little sign that this will change during
2008.
With surveyors reporting that more house sale chains are collapsing as a
result, the next few reports from the CML covering Scotland's home market
could make for increasingly sober reading.
From The Times June 6, 2008
Shackle these shameless banks Andrew Ellson, Personal Finance Editor
So now we know. The annual cost to consumers of the banks' payment
protection racket is £1.4 billion. That's £186 extra for each of the 7.5
million consumers who bought loan cover last year. And that is not some
back-of-a-fag-packet calculation by a consumer group - it is the considered
opinion of the Competition Commission after an exhaustive (some might say
overly long) 15-month investigation.
Payment protection insurance (PPI) supposedly covers loan repayments if a
borrower is unable to pay because of sickness or unemployment. I say
supposedly because in addition to being vastly overpriced, many policies
are riddled with exclusions and hard to claim against. That is not just my
opinion; it is also the opinion of the Office of Fair Trading, which last
year branded PPI “overly complex” and “poor value”.
The banks ought to be ashamed of themselves over all this. But, of course,
they are not. The nearest that the British Bankers' Association (BBA) has
come to contrition is saying that the findings offered “food for thought”.
Incredulously, it also claimed that the industry had “moved on” since the
research was carried out. For this to be true, the banks' sales techniques
must have moved a long way very quickly because it was only six months ago
that the Financial Services Authority found that that almost every lender
was still ignoring some or all of the rules.
The BBA is also suggesting that the commission's proposal to ban the sale
of PPI alongside loans would be bad for consumers. It says that it would be
wrong, in a slowing economy, to introduce rules that may reduce the number
of people with cover.
Apart from being self-interested, this analysis is wrong-headed. Research
suggests that without the hard sell, only 10 per cent to 20 per cent of
borrowers opt for PPI, but the banks sell to about 40 per cent of loan
customers. Better that those who genuinely want cover are made to seek it
independently than millions being sold costly policies that they don't want
or need.
Sadly, we have to wait a further six months for the commission's final
proposals. Let's hope that it shows no mercy.
TOP LENDERS RAPPED ON HOME COVER LEADING mortgage providers were last night accused of selling overpriced and often worthless insurance to millions of homeowners. A survey of top home-loan firms, including Halifax, NatWest, HSBC and Cheltenham & Gloucester, found staff regularly failed to make even basic checks on whether paymentprotection insurance was suitable.
Mortgage payment protection insurance (MPPI) helps borrowers meet their monthly repayments if they lose their regular source of income, because of redundancy or ill health, for example. The study, carried out by broker Rhino Insurance, revealed most sales staff did not ask customers about their health, even though those w ith existing medical conditions could be excluded from making claims. Salesmen also failed to point out cover against redundancy was likely to prove useless for self employed borrowers. Rhino managing director Simon Burgess said: "It is disgraceful these lenders do not make the most cursory of inquiries as to the status of potential customers' medical history." The one exception, added Burgess, was NatWest. None of the 25 companies approached by researchers told customers they could save hundreds of pounds on the average policy by comparing quotes from other insurers. Money-saving expert Martin Lewis said: "Mortgage companies rarely admit the same cover is available elsewhere for as little as half the price."
Lewis's research found MPPI from Payment shield cost only GBP 3.75 for each GBP 100 of repayments covered, compared with GBP 5 at Nationwide and GBP 6 for Abbey National. Lewis added that Pinnacle Insurance's HelpUPay website offered cover at GBP 2.46 per GBP 100 for 28-year-olds, as well as other competitive deals for younger borrowers. Richard Bannister-Greene, operations director of the Mortgage Advisers Association said: "We are worried about this type of policy being mis-sold. Our research has shown companies use low-calibre staff who are incentivised to meet unrealistic sales targets." The Consumers' Association said it was also worried MPPI was not being sold properly. "The results of our study into loan protection insurance were quite disappointing, " said a spokesman. "Many providers automatically included premiums in quotes and the cover was not properly explained. We are concerned the same is happening with MPPI." However, the Council of Mortgage Lenders claimed mis-selling of MPPI was not a problem. A spokeswoman said: "Any mass-market product is bound to attract some complaints but, by and large, consumers are happy." Cheltenham & Gloucester was named by Rhino as the most expensive provider with cover costing GBP 7.70 for each GBP 100 of repayment insured but the lender defended its product. "Our payment-protection insurance does not increase as rates go up and mortgages become more expensive, " said a spokeswoman. "It is also very difficult to compare policies."
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