The Office of Fair Trading recently announced it is referring the payment protection insurance market to the Competition Commission, but some advisers and providers have raised doubts about whether such a move is appropriate.
The decision follows a damning report by the OFT which suggests consumers are being failed by the PPI market and the way products are purchased hinders competition.
But Alan Lakey, partner at Highclere Financial Services, is unconvinced the referral to the Competition Commission will result in any improvements in the way PPI is sold.
He states: "I'm not sure the referral will do much more than add a little bit of pressure on providers. There are so many committees investigating financial matters which come up with phrases but often don’t get things done."
In particular, Lakey is concerned the Financial Services Authority (FSA) will continue to concentrate on small companies such as Loans.co.uk, which was fined £455,000 for failing to treat its customers fairly when selling PPI, rather than investigating bank assurers.
He adds: "It seems that the easy targets are picked on rather than the bank assurers who are the worst offenders."
Roger Edwards, products director at Bright Grey, suggests the commission needs to distinguish between general PPI and mortgage PPI (MPPI) because the profit margins on MPPI are not as great and the products are suitable for some people.
He states: "The commission needs to be careful that they have got their brief and priority right."
Edwards says it is quite ironic the market is being heavily criticised and at the same time the government is considering whether to make MPPI compulsory for all homebuyers.
Similarly, Graham Boulger, group commercial director at Paymentshield, says the provider is disappointed the OFT’s investigation failed to pick up on the way the mortgage industry works in selling MPPI.
He states: "The investigation draws no distinction between the way that single premium PPI is sold on loans and the way that MPPI is advised and sold on mortgages. It is really disappointing for trusted mortgage advisers who give their clients good advice and shop around for the best policies when they are selling MPPI."
As a result, Boulger says the firm welcomes the referral because it is hopeful the commission will see mortgage advisers behave differently from PPI distributors and offer "value and choice for consumers in a competitive marketplace".
Gerry Warner, protection development manager at Zurich, believes there needs to be more clarity in the market so consumers understand they do not have to buy PPI when taking out a loan.
He says: "There have been occasions when PPI has been sold without proper clarity about what the consumer is getting. The commission rates are very high and I can see why distributors are inclined to push it, but some consumers think they have to take it out. Some of them may assume it is easier to get a loan if they purchase the cover."
Warner believes there are some good firms which sell PPI, but says the market is "probably worthy of some further investigation".
He suggests the main problem with PPI is consumers do not always know whether they will be covered because some products have exclusions for pre-existing conditions.
Warner believes income protection (IP) is a more suitable product because it is long-term whereas PPI policies usually have a term of 12-24 months and many consumers can be off work for longer than this.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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