The great insurance rip-off
WHAT MORTGAGE - 1ST MARCH 2007
Ten firms are to be fined for mis-selling payment protection insurance.
Payment protection insurance will pay out if borrowers are unable to make monthly repayments due to job loss or illness on a loan, credit card, hire-purchased or mortgage and is often sold at the time the borrower signs an agreement to borrow money.
However payment protection insurance is optional and does not have to be bought from a lender. It has been criticised as very expensive and designed to exclude many of the most common situations that can lead to debt problems and the insurance is often mis-sold to people who cannot possible claim on it. The Financial Services Authority (FSA) is carrying out an investigation of the industry and is aiming to visit 200 firms by June 2007. it is already planning to fine around 10 firms found to be mis-selling the insurance.
Simon Burgess of payment protection insurance provider British Insurance describes this as one of the biggest rip-offs ever seen in the UK and believes that the news of the fines will open the compensation floodgates. It wont be long before consumers realise they should be following in the footsteps of those who were mis-sold pensions or suffered endowment shortfalls. I predict that round half of the 28 million payment protection insurance policies in the UK have been mis-sold and, if claims are upheld, it could cost this sector in excess of £10 billion, says Burgess.
The FSA is calling on firms to tighten up the way the insurance is sold and ensure that customers:
Are told that payment protection insurance is optional, where this is the case
Receive clear information about the product and what it will cost
Are given the assistance they need to be clear about what they are eligible for under the policy and what the exclusions are
Are, where advice is given, recommended a policy that meets their needs; and
Are offered a fair refund if they cancel their policy.
