People who take out payment protection insurance for a loan or mortgage are at risk of being grossly overcharged for the privilege of protecting themselves. A report being carried out by the Competition commission said that there is too little competition within the payment protection industry, meaning that providers are getting away with charging inflated prices.
In addition consumers seem unaware that they should shop around for the best deal like they would with other financial products. Many people feel that they have to purchase the pay protection insurance (PPI) offered by the financial institution offering them the loan or mortgage, but this is not the case.
The PPI market is worth around 1.4 billion pounds a year, which is a huge amount. However this figure is not surprising when you analyse further some of the deals being offered. Stand alone PPI policies are often much cheaper charging around three pounds for every one hundred pounds that is being insured. On the other hand PPI deals attached to loans and mortgages can be as much as twenty-eight pounds for every one hundred pounds that they are covering. This is a big difference and clearly what is contributing to the burgeoning industry.
Further to overinflating policy prices, some companies are selling PPI to people who do not meet the criteria to make a claim. PPI is taken out primarily to cover the cost of repayments if you are unable to make them yourself due to redundancy, or not being able to work because of an accident or ill-health. The conditions surrounding these terms are very tight, and it is important that anyone considering taking out PPI reads the small print very carefully, so they fully understand what is covered and what is not. In addition customers need to be careful about single premium PPI, which is attached onto the loan and therefore attracts interest meaning customers are paying even more for it.
Due to the volume of people contacting the Citizen’s Advice Bureau regarding concerns about their loan and mortgage repayments and their PPI policies, a super complaint has been made to the Office of Fair Trading. This was the time when the Competition Commission became involved and started to carry out their analysis of the market. So far they have been working for 16 months and are due to complete their final report by December. It is expected that a number of recommendations will be made regarding the industry which will help consumers get a better deal and stay protected. One such recommendation is thought to be the introduction of a temporary limit on how much company’s can charge for PPI. Another is to make it compulsory for those selling PPI to tell customers that they can shop around for a better deal if they wish to. Lenders may also be forced to include prices of their PPI policies on their advertising. All of these measures should help make the market fairer as well as hopefully encouraging other players to the industry making it more competitive.
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