Lenders are to face severe restrictions on selling PPI, and will be unable to sell the product within seven days of agreeing a loan.
A report by the Competition Commission says the move will help consumers secure lower prices and better choice in the loan insurance market.
The Commission says a "point-of-sale advantage" means customers often feel they should buy their PPI directly from their lender, leading to high prices.
Following outcry from consumer groups over a lack of competitiveness in the sector, and recent investigations into the mis-selling of PPI, the Competition Commission investigated way to improve choice. Today's report is the culmination of a four-year campaign for change in the industry.
Peter Davis, chairman of the PPI enquiry, says: "Consumers' interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider's PPI product.
"The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect."
Lenders will not be able to sell their PPI products to a customer at the time of agreeing the loan, and cannot actively market to loan customer for at least seven days. Borrowers may choose to buy their lender's insurance product after 24 hours.
Initially, the Commission had proposed banning PPI sales for 14 days, but has watered down the proposals. It will still ban single premium PPI policies, where the full insurance premium is added to the loan.
The Association of British Insurers (ABI) has rejected the Commission's report, saying the move will lead to less coverage for customers.
"The ABI supports any measures that help people make an informed choice - for example, the remedies for clearer, more timely information about the cost of PPI and the product features," says ABI director of general insurance and health, Nick Starling.
"However, the ABI believes that the point of sale ban carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more."
ABI figures show unemployment claims on PPI policies jumped 118% in November 2008 compared with the same period in 2007 and says the product is helping many consumers cope with the recession.
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000
Two roles created