Thousands are trapped in ‘overprices’ payment protection insurance policies
THE SCOTSMAN - 23RD APRIL 2005
A call has been made for action to be taken against unscrupulous payment protection insurance providers, after a new report found that thousands of mortgage borrowers were trapped in unsuitable, expensive policies.
Nick White, head of personal fiancé at independent comparison service uswitch.com claimed lenders were relying on payment protection insurance sales to boost profits, but that the cover was ‘invariably overpriced’.
Sales of payment protection insurance are currently running at a rate of more than 1000per hour, with lenders raking in an astonishing £22 million per day in commission or £8 billion per annum according to the Association of British Insurers.
However, the financial Ombudsman Service and consumer bodies have raised concerns over aggressive sales practices, lack of suitability, value, profit margins and complex terms of payment protection insurance, often pushed hard by banks and building society staff, who rely on sales to obtain bonuses. City regulator the Financial Services Authority is now looking at the issue.
Insurance broker burgesses this week said scores of borrowers with pre-existing medical conditions were tied into costly policies – supposed to pay out in the event of accident or unemployment – because they were non-transferable between lenders.
The policies have built in pre-existing medical exclusion clauses, which exclude medical conditions that exist or have occurred within 12 months of the policy start date.
Spokesman Simon Burgess branded it ‘shocking and outrageous’. He said: “The only reason for this is to tie their most vulnerable borrowers into financial arrangements that often offer poor value for money.”
Earlier this month, burgesses launched a monthly loan protection policy, offering a comparable level of cover to established lenders, but at lower cost.
Moneyfacts hailed the move “good news for the consumer”.
Spokesman Andrew Hagger added: “Hopefully, this is the start of a new trend and we’ll see more of these types’ o policies being made available.”
However, White has called for action to clamp down on “possibly one of the biggest disgraces currently in financial services”.
“These policies are often poor value and riddled with exclusions – such as those for the self employed and people with pre-existing conditions – that are rarely explained to customers,” he said.
“There’s clearly a danger of these policies being mis-sold to customers who may never lodge a claim, or more worryingly, will result in claims being turned down.”
White hit out at providers who allegedly added the cover to quotes, irrespective of whether it was asked for or not.
Regulation was introduced earlier this year to safeguard consumers against being mis-sold inappropriate products, but White claimed the same diligence was not being applied to payment protection insurance.
He urged those looking to protect loan and credit card repayments to seek out standalone income payment protection insurance, which offer better value and provide more favourable cover.
