Patch up PPI

Many customers have lost faith in payment protection insurance at a time when it could prove to be invaluable. However, Christine Hughes explains that companies are not ready to throw in the towel and are looking at innovative ways to build renewed confidence in the market

As economic storm clouds gather over the insurance industry surely the time has never been better for payment protection insurance to prove its value to consumers. But while wounds from the latest surge of bad publicity remain open and Financial Services Authority reprimands continue to heal, will insurers and brokers ever be able to restore the image of PPI and convince consumers that their hard earned pennies are worth the investment?

Although there have been suggestions that the large lenders will cease selling PPI, it seems some are not ready to throw the towel in just yet. After stopping all sales of PPI policies last August, a spokeswoman from Nationwide confirms it will re-enter the market but refuses to reveal further details. With Barclays also launching a range of new PPI products it seems a larger slice of the PPI cake may continue to rest in the hands of the major lenders than previously predicted.

Experts believe new products must be introduced carefully, but are there any innovative products on the cards or will brokers have to rely on talk of tough times ahead to keep sales figures up? As the FSA prepares to introduce a new comparative information table for PPI, Tim Howarth, senior manager at KPMG, says the key to restoring consumer confidence is "for providers to offer more flexible products, which are easy to compare in terms of price and how their value is defined".

Despite all the negative publicity, mortgage PPI has largely been given a clean bill of health by the FSA and, earlier this year, Shepherds Friendly launched its latest product. The firm's chief executive Geoffrey Spencer is confident it will address the issue of mis-selling: "A professional medical assessment carried out over the telephone at the outset by qualified nurses will ensure that we will be able to pay out on 99.9% of valid MPPI claims."

The product receives a warm welcome from Shane Craig, managing director of, who comments: "Any firm that can bring innovation and new products to the market has to be welcomed. If what Shepherds has created is an application/underwriting procedure that can help ensure that more valid claims are accepted and paid then that is in everybody's best interest."

Unfortunately, and Mr Spencer agrees, the launch coincides with a growing mortgage crisis where most borrowers are offered a standard variable rate instead of the fixed period mortgages for which his product was designed.

Drop in sales

Although the Council of Mortgage Lenders reported a 30% drop in the number of home loans made in February compared to 2007, the sale of MPPI policies is only down by around 10% in the first quarter of 2008, according to figures from Paymentshield. Sandy McPherson, its head of marketing, offers an explanation: "Sellers have more time to sell the MPPI cover and borrowers are more receptive when lending is tight and conditions get tougher."

While consumers seem to remain faithful to MPPI, the traditional PPI policies riddled with small print and exclusions are due an overhaul. "In the past we have offered PPI on a variety of financial commitments such as private school fees and there is no reason why this product should be focused purely on mortgages or loans.

We are currently looking at a new range of products such as bill payment protection and other lifestyle products," explains Chris Biles, active underwriter at Cassidy Davis Syndicate 5820. "Many independent insurers are beginning to see new opportunities developing in the market in the wake of regulatory changes."

He adds: "It will open up the market to brokers and people that are more confident in selling insurance to actually start offering it as a product."

But will the fact the majority of PPI policies are still sold along with credit remain an issue? Ian Hall, head of personal lines at Only Insurance, is confident that consumers will help grow the market through online applications: "Consumers are increasingly driven to the internet and I suspect some of the aggregators will be looking to advance further into PPI. Consumers are increasingly internet savvy and they are now better informed to seek PPI independently."

Perhaps the big question is whether the industry can succeed in changing consumer habits? After all, the convenience of buying PPI policies at point of sale may easily outweigh the potential benefits of scouring the internet in search of a better deal.

Mr Howarth remains sceptical and says: "Only around 10% of PPI policies are currently sold as stand-alone products and I doubt we will see a mass market move towards it."

Matt Morris, policy adviser at Lifesearch, also has his doubts: "The reality is if PPI was sold more responsibly, and by brokers rather than lenders, it just wouldn't be sold very often. I doubt sales figures will remain at their current level if it is sold as a stand- alone product."

The majority of PPI and MPPI policies are still bundled with loans but some would prefer a shift towards a complete separation from credit transactions. Paul Thompson, chief executive officer at Assurant Solutions, says: "The Competition Commission's findings could potentially create more opportunities for the broker market, if it decides that the sale of PPI products should be decoupled from the loan."

So, although the days may be numbered for one-size-fits-all PPI policies, industry players seem confident that a new flexible range of products will bring back consumer confidence and secure sensible profits. The real question could be how underwriters will view any new and unproven products at a time of increased risk and what impact this will have on the market.

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