What is the future for payment protection insurance?
- 5TH MAY 2007
The future of payment protection insurance (PPI) has never appeared bleaker than it is at the moment. At least, that is how it may appear to lenders and high street providers that offer payment protection insurance alongside a credit card or loan.
If, however, you are a consumer, the future of payment protection insurance is looking good – though it will be another few years until they can truly reap the benefits.
It is anticipated that ongoing investigations into payment protection insurance by the Office of Fair Trading; Financial Services Authority (FSA); and the Competition Commission may actually force the cost of payment protection insurance down to around 25% of the price consumers pay for a policy at the moment.
The payment protection insurance industry contributed over £5 billion to profits in the financial industry in 2006. In the future, this may be reduced by £2 billion every year if the Competition Commission forces providers to slash policy prices.
However, the downside for consumers is that banks and lenders will most likely look to higher APRs on credit cards and loans to recoup profits.
These price capping will mean there is a healthy competition among the providers, giving the consumer more choice as to how much they pay for their policy.
Educating the consumers too - such as the FSA’s current £2m campaign - will also make them realise that payment protection insurance is not compulsory and can be bought as a standalone policy.
Independent companies like payment protection specialists British Insurance have extremely bright futures. Not only have their premiums always been significantly lower than those offered by the high street banks and lenders, but also their standalone policies offer a degree of flexibility unheard of amongst policies offered by lenders to run alongside credit agreements.
