Payment protection insurance warning
Thursday, 19 Oct 2006 12:52
Payment protection insurance is overpriced, offers limited cover, and is frequently mis-sold
Payment protection insurance is overpriced, offers limited cover, and is frequently mis-sold.
These are some of the conclusions of two government watchdogs which today released damning reports into the payment protection insurance industry.
"It is clear that many consumers are failed by payment protection insurance - insurance which gives them a poor deal and often less protection than they think," said John Fingleton, chief executive of the Office of Fair Trading (OFT).
"Given our evidence and the scale of this market, our provisional view is that it would be appropriate for the Competition Commission to investigate further."
Payment protection insurance is designed to protect a borrower's ability to make loan, mortgage, or credit card payments in case of accident, sickness or unemployment.
Some seven million policies are taken out each year, with the industry worth £5.5 billion.
But the OFT found payment protection insurance looked over-priced compared with other insurance, and often covered less than might reasonably be expected.
But as well as being criticised for offering poor value and protection there were also concerns raised about the way payment protection insurance is sold.
Clive Briault, managing director of the Financial Services Authority (FSA), commented: "The bottom line is that customers should come away from the sale having been given the best possible chance of understanding that payment protection insurance is optional, what the policy will and will not cover and how much it costs.
"On the strength of our findings, the industry has further to go to demonstrate that customers really are being treated fairly in this market."
The OFT and the FSA acknowledge payment protection insurance does provide "worthwhile cover" for some customers, but there are also significant problems in the industry.
"There are also important messages here for consumers. They should be prepared to ask straightforward questions of sales staff when payment protection insurance is mentioned and we are publishing some top tips on this to help them to identify whether payment protection insurance is right for them," Mr Briault said.
To try and make sure consumers get the best deal they can, the FSA released the following tips:
Payment protection insurance is almost always optional - you should not be refused credit if you decide not to buy it. Consider your own personal financial circumstances, including any other insurance cover or savings you already have, when deciding whether you need it;
If you do, make sure you are clear about what you will be covered for and what will not be covered, for example any exclusions relating to your medical history;
Ask before buying if you are uncertain;
Remember you do not have to take out payment protection insurance from the same place you get your loan from - shop around to compare benefits and prices;
Check what you will get back if you cancel the policy or repay the loan early.
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