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OFT to investigate payment protection market
09/12/2005 16:34:00
The UK Office of Fair Trading (OFT) has announced plans to carry out a new in-depth study of the payment protection insurance (PPI) sector.
The market study, which follows the OFT's consideration of a super-complaint from Citizens Advice, will start in early 2006, examining the size of the PPI sector and the complexity of the product.
The OFT investigation also plans to scrutinise the lack of understanding of the policies amongst consumers and the way in which the product is sold, looking particularly at the lack of information about alternative suppliers, problems with transparency and the wide degree of variation in pricing.
In a statement, the organisation said: "The OFT has identified a number of issues which point to the sector not working well for consumers and which indicate the need for a more detailed examination."
According to the OFT, "although there is a lack of information on profitability, an indication of high profitability is provided by claims ratios". Claims ratios for PPI are around 15-20 per cent, well below other general insurance products.
"PPI is a complex product, often bought almost as an afterthought," OFT chief executive John Fingleton said. "Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean that they are less likely to shop around for PPI. There is a high potential for consumer detriment – our study will look at whether consumers are getting a good deal or not."
PPI is applied to a number of credit products including mortgages, loans, credit and store cards. It is intended to protect consumers' ability to pay off a loan in the event of accident, sickness or unemployment.
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