A missed opportunity on payment protection insurance
MORTGAGE SOLUTIONS - 4TH JUNE 2007
If the consumer watchdog Which? can get mixed up with the level of refund available from a cancelled single premium protection policy, then what chance does the man in the street have?
Reading through an article in May’s edition of Which magazine, I stumbled across a sentence that made me draw breath. In an article discussing what to look out for in the payment protection insurance market, it stated: ‘But if you have bought payment protection insurance, under new FSA guidelines, you can now cancel single premium payment protection insurance and get a proportionate part of the refund.’
The article seems to be claiming that consumers will get a pro-rata refund, but this is not the case. Indeed, it was this very point that generated a great deal of frustration in the market when the FSA initially announced the deal that it had struck with the single premium payment protection insurance industry earlier this year.
The agreement reached actually means providers have to: ‘calculate the refund fairly, taking into account their reasonably incurred costs, which may or may not result in a pro-rata refund.’
But what constitutes a ‘reasonably incurred cost’, and surely this simply leaves the door wide open for unscrupulous providers to cut drastically the scale of the refunds they pay on cancelled policies?
Which? has played a massive part in raising awareness about the problems in the payment protection insurance market and continues to offer excellent information and advice for consumers struggling to get a good deal. However, the fact that it can make a mistake in regard to single premium policy refunds shows how effectively providers have muddied the waters and confused the issues involved for everybody.
The ongoing battle over bank charges gives a clear indication of how large financial providers operate and the view they are likely to take when it comes to working out the reasonably incurred costs in cancelling a policy.
The FSA undoubtedly missed an opportunity to build consumer trust and improve transparency in the single premium payment protection insurance market and should have insisted on pro rata refunds for cancelled policies. Instead, we have a situation where people think they are getting proportionate refunds, but in truth it is unlikely they will get anything of the sort by the time providers have added up their own costs in settling the matter.
What is most depressing is that the clients most likely to be offered single premium policies are often the least financially sophisticated and in many of the sales being made, providers and intermediaries have abused their position of power.
Now, those looking to cancel cannot even be assured of a fair deal when they do so.
Simon Burgess
Managing director
British Insurance
