CSI payment protection insurance
NICHE MORTGAGES - 1ST NOVEMBER 2007
After an investigation and fines for bad practice, the FSA is taking payment protection insurance seriously, explains Simon Burgess, managing director, Britishinsurance.com.
At the beginning of September the Financial Services Authority (FSA) at last took a very public and determined step forward in the battle against poor practice in the payment protection insurance sector.
There has been all sorts of prevaricating from payment protection insurance providers and distributors over their efforts to deliver best advice and best value to clients as the FSA and various other regulatory bodies have raged in the background over the inadequacies of the status quo.
However, despite all of the regulatory huffing, puffing and stamping of feet the vast majority of payment protection insurance practitioners have unfortunately done little to change the way they operate. Why would they when their cash registers have been ringing like church bells on Christmas morning and nothing of real note was being done to sanction those acting with impropriety?
However, hopefully some of the festive cheer will have left payment protection insurance offices up and down the country on the back of the FSA’s decision to not only fine Hadenglen Home Finance Ltd £133,000 for its failings in regard to remortgages and payment protection insurance, but to also hold chief executive, Richard Hayes, separately and personally responsible to the tune of £49,000.
This is the first time in this part of the market that a chief executive has been held personally liable for the corporate failings of their business and it sends out a clear message to others whose companies are operating in the same manner.
What will be particularly worrying for executives in this position is that regulatory fines will not be covered by insurance and so have to be met out of personal coffers.
Indeed Hayes may even count himself lucky in that the FSA has also stated its intention to up the level of fines it imposes and so for those found wanting further down the line the penalties are only going to become more severe.
The signal this sends out to the market is irrefutable and the only hope is that the regulator has sufficient resources to ensure it can find the firms that continue to flout their regulatory obligations and hold them to account.
Certainly it seems that over the next month or two there will be further cases that hit the headline, given the FSA’s findings from its latest review of the payment protection insurance sector, published at the end of September.
As the regulator stated: “The mystery shopping identified serious failures in the sales processes of a number of firms selling single premium payment protection insurance alongside unsecured personal loan. As a result four firms will be subject to further investigations and a further 20 cases may also be investigated.”
If more chief executives are personally fined then this must surely help to drive a significant change in the laissez faire attitude towards treating customers fairly that has so far prevailed in some offices.
It is naïve to expect that things will change overnight and there is little question they will, but if there is a definite change in market sentiment over the way firms and their managerial staff will be brought before the judges at Canary Wharf, then it can only help speed up progress towards a better performing market.
To date the FSA has also been keen to take a back seat when it comes to interfering in the specific products that were being sold and while there are guidelines over design and suitability, providers have been left pretty much with a free hand in this regard.
Although the regulator says it is keen to retain this stance, it looks increasingly set to take firms to task where their products do not genuinely meet up to its guidelines. In the past many have bemoaned the fact that poorly designed products have been allowed to reign supreme in this market, but hopefully this will not be the case for much longer.
The FSA said it expected firms to review its guidance on the product design process and “carefully consider whether their existing products meet their customers’ needs”. It continued: “If the products do not, firms should consider what changed they may need to make to the product design to meet their TCF obligations.”
The message again seems clear and the powers that be in Canary Wharf seem more than ready to use their TCF requirements to now ensure firms are offering consumers the kind of products that give them the cover and value they need in this market.
Although there are some incredibly strong arguments for the FSA to begin regulating products in the payment protection insurance sector, it is understandable from a commercial point of view that many feel keeping the focus on the sales practices is the better way of doing things.
However, the FSA is now in a position to get the best of both worlds and, if it uses its TCF principles effectively, it can make sure the products being sold are up to scratch and not over priced, while avoiding the necessity to intervene more actively in the actual design of every insurance product that goes on the shelf.
Three years into the regulated environment, there is a feeling that the FSA has now got its feet well and truly under the table and, having highlighted problem areas, set performance benchmarks and carried out a number of thematic reviews, it is in a position to punish those who are consistently falling short on compliance.
It has been a long time in coming and there is still a long way to go before things are perfect. However there are a number of people, including myself, who believe we are moving in the right direction. Given the changes over the last few weeks, there is also a feeling that the pace of change is at last speeding up. Hopefully this belief is not misplaced.
