Payment protection insurance: Aversion therapy


As PPI mis-selling complaints continue to pour in
to the Financial Ombudsman Service, are providers doing enough to salvage the reputation of the sector?

This year’s Financial Ombudsman Service complaints make dismal reading. In the first half of 2011, almost 150 000 complaints were lodged, of which more than 
98 000 concerned payment protection insurance.

Five industry players — Lloyds, Barclays, HSBC, Royal Bank of Scotland and MBNA — were responsible for just under half of the cases referred, with each generating around 10 000 complaints. The service, on average, receives 900 new PPI cases every day.

The rising complaints are fuelled by claims management companies urging consumers who have taken out loans, mortgages or credit cards, and who might have been mis-sold to, to refer their case. Indeed, around 80% of cases received this year are via CMCs.

While the FOS has seen the complaints continue to flood in, the PPI scandal has remained high on the media agenda and has caused many consumers to develop an aversion to the product.

However, what has the uptake of PPI been since the scandal began? Since May 2010, TNS Omnibus and British Insurance have been 
compiling research to gain a better understanding 
of attitudes towards financial protection and whether employees have measures in place to tackle a potential shortfall in income.

The latest findings reveal that, despite more people being worried about job losses, fewer are opting for PPI. In October 2011, 59% of 
respondents were worried about losing their jobs, yet only 14% had unemployment cover. In May 2010, the figure was 51% and 20% respectively.

Of the 86% without such a safety net, many believe ‘it’s too expensive’ or ‘don’t like it’ as a product. In addition, a lack of awareness about PPI appears to be growing. From May 2010 to October 2011, the number of respondents with little or no idea about the cover increased from 37% to 43%.

Perceived cost
It is clear that the mis-selling debacle is having 
a negative effect on potential policyholders. Consumers are becoming disinterested in the product because of the perceived cost and its tarnished reputation.

Respondents would rather rely on their 
savings, families, benefits or credit cards as sources of income in the event of redundancy — some 13%, simply ‘don’t know’ how they will cover monthly bill commitments. While the vast majority of complaints come from the banking sector, just 37% bought their cover in this way. Meanwhile, 16% opted for the internet or an 
independent financial adviser, 14% a credit card or loan company and 13% chose an insurance broker.

These findings will not surprise many in the insurance industry. Had the banking sector been more transparent, there would have been far fewer complaints and less of a reputational mountain to climb.

However, while the past cannot be changed, the future can be influenced. Firms have already started handling and resolving complaints more efficiently and many have PPI guides outlining elements of the cover on their websites.

Yet, there is still a need for greater clarity. In order to equip consumers with the tools to make informed decisions, providers must answer
common questions up front and not bury them in product summaries or policy documents.

Many providers already explain what PPI is and how it works, but few detail the eligibility criteria for all workers or draw attention to the 120-day claim exclusion clause, in place from day one, in plain English.

Many high street providers only make 
consumers aware that ‘certain conditions 
apply to the self-employed, part-time workers or those on a contract’ and that a policy has to be in place for ‘a certain period of time’ before a claim can be made and are then referred to the policy summary.

Clearer information
However, clearer information is not the only solution. Some providers are looking to 
distance themselves from PPI and refer to their products as short-term income protection 
policies. If PPI is to be rebranded in this way, the term should be used appropriately and consistently across the sector. Failure to do so will cause further confusion, impinging the sector’s future survival.

A new approach – an advertising campaign from Aviva scheduled during ITV’s flagship series Downton Abbey — will undoubtedly raise awareness of the benefits of longer-term income protection following an accident or sickness.

The sector is hopeful this resonates with workers and prompts them to consider the consequences of a fall in household income. Any campaign that highlights the need for financial protection and introduces the issue into the public psyche is to be applauded.

Given that the Office for National Statistics 
recently reported UK unemployment had reached 2.62 million in the three months to September — the highest total number of 
unemployed people since 1994 — the sector has a duty to explain how PPI can prevent financial 
hardship, and make it easy for workers to understand the mis-selling issues.

In September, the potential importance of the product became clearer, when news of a redundancy programme at BAE Systems was announced. Nearly 3000 jobs will be lost across the UK and research group Oxford Economics predicts a further 5700 jobs are at risk at BAE’s suppliers and the wider economy.

Unfortunately it looks as if they, like so many of our survey respondents, will have to rely on savings, their wider family or state benefits.

November 2005
The Financial Services Authority issues its first report on payment protection insurance, identify poor selling practices and a lack of compliance controls in the market after company visits and mystery shopping

February 2007
The Office of Fair Trading refers PPI to the Competition Commission

September 2007
Egg, Liverpool Victoria and Land of Leather all fined by the FSA for PPI failings

April 2008
The CC publishes two reports underlining problems in the PPI market

July 2008
The Financial Ombudsman Service asks the FSA to investigate how firms are handling PPI complaints

January 2009
The CC recommends that loans and PPI are not sold at the same time

May 2009
The FSA bans sales of single premium PPI

September 2009
The FSA launches consultation paper on how to improve complaints handling

October 2010
Banks seek judicial review and new measures

October 2010
The CC confirms PPI cannot be sold at point of sale

January 2011
High Court case begins

April 2011
High Court judge rules against banks

May 2011
The British Bankers' Association decides not to appeal against the High Court ruling

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