The Payment Protection Insurance (PPI) arena will witness a huge slide in profits over the next couple of years, according to Defaqto.
The research firm says an ongoing examination of the products by the Competition Commission will lead to an “inevitable tightening” of the rules under which PPI can be sold.
It says with an annual turnover of around £4.5bn and profits in the order of £1.5bn, the industry is likely to suffer a severe dilution of profits when the Commission’s statement of remedies is published.
If this includes de-coupling the sale of PPI from that of the credit product, this in itself would have a huge impact on the industry, it says.
The findings form part of Defaqto’s latest report ‘Payment Protection Insurance 2008 – The party’s over’.
Defaqto says as a consequence of the inevitable tightening of the rules under which PPI can be sold, costs and charges across a wide range of other financial products and services will have to rise steeply if banks and credit card companies are to fill the holes in their balance sheets that this will create.
Brian Brown, head of insight and lead author of the report, says: “We must be very careful not to throw the baby out with the bathwater.
“PPI has been exploited by lenders as an easy source of profit, but the products themselves can be an extremely valuable.
“Policyholders need to carefully examine their personal circumstances and their policy wordings and form a judgement as to whether to retain them, seek cheaper alternatives or drop them altogether.
“PPI is the first safety net people fall back on before being forced to claim state benefits and PPI’s detractors should think carefully before advising people to cancel their policies unless they are prepared to accept responsibility for policyholders left unprotected by their advice.”
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