Sometimes principles don’t count
MORTGAGE ADVISER - 15TH AUGUST 2007
Principles are all very well, says Simon Burgess, managing director of Britishinsurance, but what the payment protection insurance industry needs is some real discipline.
Even though professional competency is key to the FSA’s regime, training requirements in the payment protection insurance market remain flimsy at best. For mortgage and general insurance brokers selling payment protection insurance, the sector is covered in basic market entry exams such as the Certificate in Mortgage Advice and Practice and the Certificate in Regulated General Insurance.
This is all very well as a starting point, but given that payment protection insurance is a multi-billion pound industry and has had more than its fair share of problems in the last few years, it is wrong to think higher standards are not required.
While stricter requirements to sell payment protection insurance would focus attention on the responsibilities advisers have to their clients, they must be introduced alongside a tighter line form the FSA over the frightening divergence in price that exists between the cheapest and most expensive products in the market.
Expensive
In areas such as loan protection, policies sold by high street providers are up to 12 times more expensive than other more keenly and appropriately priced products in the market.
Despite this, the regulator has refused to outlaw these policies although it is difficult to see how they stand up in the face of treating customers fairly.
Until this price gulf is dealt with and greater levels of competition are introduced to the market, improved training can only go so far to ensure a better outcome for consumers.
This is why the move to a principles-based regulatory regime is so worrying for the payment protection insurance market.
Not only have the TCF principles failed to curb the worst excesses of the largest sellers in this market, but the smaller firms have also shown themselves incapable of introducing the principles with any significant level of success.
We are therefore left with a situation where the smaller firms seem unable to cope with a principles-led regime and the principles themselves seem incapable of preventing the largest providers committing the most blatant transgressions.
This is not an ideal situation for the market to find itself in and while the debate continues, consumers are left effectively unprotected. Principles-led regulation does have its advantages and may prove successful in the years to come. However it would appear that to force it on to every market under the FSA’s control is not only over enthusiastic, but also dangerous.
Offenders
If the FSA were to take a step back and regulate the payment protection insurance products that were being sold, it could immediately curtail the worst offenders in the market. Improved training would then help improve the sales processes at work and in time, and once the payment protection insurance sector had proved it was delivering for clients, the regulator could begin to navigate a course to a more principled-based regime.
At the moment, when there are so many issues outstanding, such a move is a bridge too far.
