The Association of British Insurers (ABI) should abandon payment protection insurance (PPI) for good, says Pioneer Friendly.
Chief executive Andy Chapman says the product is poor value, has an unenviable record of paying out on claims, and benefits banks before consumers.
But Chapman argues the income protection (IP) arena can learn from the PPI market, which he admits is more profitable and widely used.
“The ABI aren’t doing enough to get rid of PPI for good,” he says. “It is a product that’s not really fit for purpose.
“It costs a lot of money, doesn’t pay out on claims, and it’s the banks that are making a lot of money out of selling it.”
The PPI industry has been subject to fierce criticism in recent months, particularly over complaints of mis-selling, a “lack of competition” in the market and banks’ tendency to sell it as an add-on to other credit products.
The Competition Commission and the FSA have both been at the forefront of the disparagement, but former FSA retail chief Clive Briault said of the product in 2005: “When properly structured, explained and sold, payment protection insurance can provide worthwhile cover for consumers against unexpected changes in their personal circumstances.”
Chapman says the IP market can learn from the success of PPI and dubs its troubles “a wake-up call”.
“The thing that IP should learn from PPI is that they get their distribution right,” he says.
“If they get it right for the right reasons, I’ve got to hand it to them, they sell a lot more policies.
“There are things we can learn. Whether it’s the method of distribution or the product itself, if it has given the IP industry a wake-up call, then that’s great.”
Chapman, whose firm Pioneer Friendly merged with Exeter Friendly at the end of March, says IP is a far more valuable product, particularly because it covers consumers until retirement, way beyond the standard two year PPI policy.
“You can get full IP for not too much more money,” he says. “PPI will cover you for two years, whereas IP will cover you through to 65.
“It’s true that PPI covers for unemployment insurance but you can add unemployment cover to your income protection and it still doesn’t cost that much more.”
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