Change on the cards for payment protection insurance

DECIDING whether to take out payment protection insurance (PPI) when entering into a credit arrangement should involve the consumer in a classic cost-benefit analysis: how much more do I want to shell out to ensure that I'm covered if unable to meet a repayment in the future? However, this rational thought process is only possible if PPI suppliers are up-front about the details of the policy. Ultimately, this concern frames the ongoing Competition Commission (CC) investigation into the supply of non-business PPI (excluding store card PPI).

The CC's "emerging thinking" was recently published and provides an insight into the direction of its investigation so far. With some PPI cover said to cost more than the interest on the original loan, the CC must ultimately determine whether the industry is functioning as it should and, if it is not, find a remedy to ensure PPI offers peace of mind at a competitive price, while maintaining the market as a viable business.

There is also the bigger picture to consider. As a form of insurance cover which is secondary to the credit product itself, PPI has a role to play in the viability of the primary arrangement . Similarly, it is important to the rationale behind seeking credit in the first place by providing the comfort often required to make that "sale".

Strengthening this important link in the chain should increase consumer confidence and serve to boost the health of other related markets. On the flip-side, many industry players suggest that imposed change may lead to higher costs for providers, ultimately boosting premiums.

If the CC concludes the PPI market is adversely affecting competition, providers will be required to change how they do business. The CC's past reports on store cards and extended warranties illustrate the kind of action which has been required before. For example, the inquiry into extended warranties led to providers being required to display, at point of sale, the price of the warranty alongside that of the product.

It is not difficult to foresee the equivalent remedies which could be imposed in the PPI sector, if a problem is confirmed by the CC. Increased transparency on the scope of cover provided from the outset, a clearer separation between the primary product and the PPI cover, as well as an obligation to highlight the voluntary nature of PPI and its availability from independent third parties could be required.

? Sarah Hoskins is an assistant solicitor in the EU, competition and regulatory team at Maclay Murray & Spens LLP

SAVINGS TIP

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