The sale of payment protection insurance alongside loans and credit cards is to be banned in 2010.
Companies will have to wait seven days before they can contact a customer to sell them the insurance, which covers a borrower’s repayments should they lose their job or find themselves unable to work as a result of sickness or an accident, under new rules announced by the Competition Commission on Thursday.
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Lenders will also no longer be able to offer single premium policies – a large, one-off payment rather than monthly instalments – and they will have to provide much more information to consumers.
The commission concluded, in a report, that there was a serious lack of competition in the market, with few consumers aware that they could shop around for PPI and few switching providers. It said the point-of-sale advantage made it difficult for other providers to reach customers, leading to consumers being charged high prices.
Prices vary dramatically on the 12m PPI policies in the UK, with some costing as little as £2.50 ($3.5, €2.7) for every £100 covered while others charge as much as £28.
Peter Davis, inquiry chairman and commission deputy chairman, said of the report: “These are significant measures carefully designed to address the serious competition problems that currently exist in this market.
“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.”
Consumer groups welcomed the move. Louise Hanson, head of campaigns at Which?, said the decision was long overdue as consumers have suffered from “shoddy, expensive and inadequate protection”.
But some providers said the crackdown has come at the wrong time.
With unemployment at an 11-year high and set to climb further, the number of people claiming on PPI has doubled, they say
Nick Starling, a director at the Association of British Insurers, said: “We remain extremely concerned that the fundamental risks to borrowers have not been addressed. Our job now is to work with our members and the regulators to minimise these risks and make it work. The devil will be in the detail.”
Sean Gardner, director of MoneyExpert.com, added: “The decision risks stoking the flames of recession just as unemployment is soaring.”
