What does the future hold for the payment protection insurance sector?
MORTGAGE STRATEGY - 19TH NOVEMBER 2007
Payment protection insurance needs to get its house in order, but if it does it will play a vital role for consumers exposed to the effects of the liquidity crisis.
David Quick is managing director of CETA
Too many big banks and building societies have cynically used payment protection insurance as a cash cow to milk consumers, so it was inevitable their game would be eventually be rumbled. But it’s a shame that brokers and independent financial advisers are also suffering from the fallout.
If the media is now sending out the message that payment protection insurance is a rip-off it’s no surprise if the public treats all sellers with suspicion. Consumers have already been fleeced by other underhand sales tactics, such as retailers selling extended warranty insurance on electrical goods, so it will be an arduous task to restore confidence.
But while the bad publicity will have an adverse impact, the public’s willingness to finance their lifestyles through credit and loans should ensure some sort of future for payment protection insurance. Times are getting tougher and more clients have stretched their finances to the limit. Many will still be interested in payment protection insurance if they can be convinced there are reputable sellers and fairly priced products out there that will hold good to their promise of paying out should catastrophe strike.
It would help if the compensation campaign now underway to claim refunds for those mis-sold payment protection insurance, overcharged for it or both were to name and shame the worst offenders. There’s little evidence to suggest they’ll clean up their acts otherwise.
Given this situation, all that brokers and IFAs can do is to demonstrate that they offer a choice and are there to assist consumers to choose the most appropriate cover.
They should also promote the message that mortgage payment protection insurance is a separate product from payment protection insurance and can demonstrate a far superior track record in responding to and paying claims. With repossessions set to rise, mortgage payment protection insurance is about to demonstrate its worth.
Simon Burgess is managing director of Britishinsurance.com
The great news for payment protection insurance is that there’s a sharp focus on it from regulators, legislators and commentators looking to improve its offerings to consumers.
Although many of the sector’s problems have been identified by numerous reviews and investigations, efforts must be made to act on this information to offer consumers good value insurance.
At the moment, we’re in a halfway house where we understand the problems with payment protection insurance but have yet to eradicate them.
Consumers have to be confident that they are eligible for the products being sold. They have to be sure that what’s on offer represents good value and must be able to take confidence from the fact that refunds are fair and representative.
At the moment this is not the case, and although the Financial Services Authority has all the tools at its disposal to ensure these things happen, it hasn’t used them yet.
The FSA has said that in the future it will come down hard on firms that fall short of the required standards and this cannot happen fast enough.
At the moment too many providers and distributors are getting away with slack sales procedures and poor value products, and that’s before we even consider the number of consumers being sold policies that they’re not eligible to claim.
Interest rates may have reached the top of the current cycle, but for sub-prime borrowers, criteria and rates look set to remain tight well into next year.
Payment protection insurance at its best remains a cheap and effective way of safeguarding vulnerable clients and although sales in recent years have fallen off, a revamped and revitalised industry selling fit-for purpose, cost-effective policies to eligible clients has an important role to play.
