OFT To Investigate Payment Protection Schemes

The OFT has launched a market study to look in depth at the payment protection insurance (PPI) sector. The study follows a super-complaint from Citizens Advice.

PPI is applied to a number of credit products including mortgages, loans and credit cards and protects a borrower's ability to keep up the payments on the loan in case of accident, sickness or unemployment, usually for 12 months or sometimes longer. Around 6.5 to 7.5 million policies are taken out each year generating premium income estimated in 2003 at £5.4billion.

The OFT response to the super-complaint identified a number of issues which pointed to the sector not working well for consumers and which indicated the need for a more detailed examination. These issues were:

consumers face difficulties in getting clear information

there are high costs or other barriers to entry for stand-alone PPI providers

there is a wide degree of variation in pricing in the sector

gross profit margins appear high

PPI claims ratios are low compared to other general insurance product.

The market study will examine these issues in more detail and will also look at:

the relationship between the various players who supply PPI and how this affects the sector

how the product is sold to consumers and what influences their choices

consumers' experiences of making claims

the impact exclusions have upon consumers' ability to shop around

consumer awareness and understanding of exclusions.

The OFT states that it will consult widely with the industry - a business survey will be sent out shortly to lenders, insurers and intermediaries. A detailed survey of consumers will also be carried out.

The OFT expects to publish its report by the end of 2006.