Watchdog finds lack of competition in retail PPI

Consumers are paying a high price for the lack of competition in the retail payment protection insurance (PPI) market, the Competition Commission has found.

Retail PPI is an insurance product sold alongside credit agreements extended to home shopping customers, to protect consumers from falling into debt if they suffer from an accident or are made unemployed.

The provisional conclusions are part of an ongoing investigation into the PPI market, launched after cases of missold policies and poor value were revealed.

However, the insurance is over-priced because of a lack of competition, market regulator the Competition Commission (CC) has said.

The majority of retail PPI is sold by the catalogue providers at the point of sale and due to its complexity and low consumer awareness, customers do not usually shop around for another price.

Barriers to entering the market as a standalone PPI provider are so difficult to overcome, Axa and Aviva have withdrawn their products – despite their high profitability.

"First, as we found that distributors have high margins, and enjoy high profitability, when selling retail PPI, we concluded that consumers were paying prices higher than they would in a well-functioning market, in line with the provisional findings for other forms of PPI.

"However, unlike our provisional findings in relation to other types of PPI, we did not find that high prices for retail PPI were significantly distorting prices for credit or retail goods - all parties we asked told us that the income earned on retail PPI did not affect the prices set for retail credit or the underlying goods," the Competition Commission concluded.

The Commission said it would look at a possible requirement to sell retail PPI separately from merchandise cover to help make the market more competitive, and is considering ways to help consumers switch policies.

It will consider comments received by October 31st.

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