It is encouraging that the Competition Commission (CC) has not yet identified any competition concerns in respect of its investigation into the payment protection insurance (PPI) market. It said so in a statement recently, which also laid out the issues it will examine when it looks at the £5.5bn market.
The commission is to consider both the sale of PPI by distributors to customers and the provision of PPI by insurers through distributors. In particular, it said it would also consider price competition between suppliers and any barriers to entry and expansion.
This will form the basis to guide collection of evidence including the first round of hearings with interested parties that it will undertake from May to July this year.
This market reference follows a super-complaint from Citizens Advice to the Office of Fair Trading (OFT). The Financial Services Authority (FSA) is also conducting its own review into the selling of these insurances. The FSA’s chief executive John Tiner said last month its review had found instances of "market failure" and greater risks with protection products. And it is considering measures to improve selling practices for these products and to help customers get better information before a sale.
This echoes the findings of the OFT which said that while PPI can provide worthwhile cover, there were concerns which included a lack of competition at the point of sale, difficulty in comparing policies, a lack of product information and the inclusion of the insurance without a customer's knowledge.
It seems self evident that in some cases there have been issues in selling this cover. But let’s not forget that there are about 20 million PPI policies in force and around seven million taken out each year. This insurance offers vital protection to millions of people in what is rapidly becoming a world where there are few guarantees regarding employment or healthcare.
Instead of constantly hammering the sector the government and other agencies should be pro-actively supporting it and highlighting the protection and peace of mind this cover offers. They must acknowledge and accept there are some poor practices which need to be eradicated but must also accept that there are firms which sell these policies in a compliant manner, who treat their customers fairly and as long as the product is appropriately sold and is a suitable product it does offer a valuable protection to the client and the economy of the country as a whole.
The danger is that, following all the barrage of bad press, financial services intermediaries will shy away from recommending this product to their clients, where it is appropriate. This would be detrimental to the very customer base that the agencies are seeking to protect.
Although the statutory deadline for the CC inquiry is 6 February 2009, the inquiry group aims to complete its investigation more quickly than that and expects to publish its next publication - the 'emerging thinking' document - in the autumn.
The CC is canvassing views on its issues statement from all interested parties. If you have any strong views put them in writing to the commission by Friday 11 May 2007.
Geoff Hall is director of Berkeley Alexander Insurance Services.
The views expressed are those of the author and not those of the company he represents.IFAonline
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