Comment on OFT reference to theCompetition Commission for Payment Protection Insurance

7th March 2007

The British Insurance Brokers’ Association (BIBA) is the UK’s leading general insurance intermediary organisation. We represent the interests of insurance brokers, intermediaries and their customers, and have partner members from the leading companies in the insurance industry.

We are pleased to have the opportunity to comment to the Competition Commission’s investigation into Payment Protection Insurance (PPI). We are responding on behalf of our collective membership.


OFT Report Section




1. FSA work


FSA have concentrated their efforts on improving selling practices and standards to ensure consumers receive suitable products that meet their needs. Their thematic visits have uncovered increasing evidence of a lack of retail controls on PPI sales.

However, this does not address the issues around access to competitive products for consumers.


Market Structure


BIBA members include a number of firms with particular expertise in PPI. To support the list of companies identified by the OFT report, we are pleased to attach a list of our members who offer products and/or advice on ASU, MPPI and other life style products.

In an attempt to widen the availability of these products BIBA has promoted a scheme to the members. The BIBA ASU scheme is a resource for all our members.

These products are available either on an advised basis or are accessible online, as non advised direct sales.



POA Difficulties for stand alone providers


The point of sale advantage and the consumers lack of awareness of alternative products and advice is, in our opinion, the key issue to understanding the lack of competition. Alternative stand alone products have been unable to break into this market and lenders have taken advantage of this lack of competition to the detriment of consumers.


MPPI Sector


The MPPI sector is subject to a greater degree of competition, resulting in more choice for consumers and lower prices.


Income Protection


Although income protection is not seen as a direct competitor, it does offer a number of additional benefits. It is worth noting, however, that many Income Protection policies do not cover unemployment

Premium Payment Insurance is essentially dealing with specific indebtedness and protecting known financial commitments. Not replacement of a percentage of net or gross income.



Competition on credit products

PPI automatically included


We recommend that consideration be given to de linking and that further work be undertaken to educate consumers on this point.




Potential to mislead

Headline rate



BIBA agrees with the OFT’s report in relation to the potential to mislead.

We believe that if the customer is to be treated fairly, it is essential that the APR for the loan agreement should be totally separate.

In our view, the only option is to ban the use of headline rates if they are to include the insurance element. The insurance as a totally separate product should be clearly identified together with the associated costs of either the single or monthly premium base.

The prime object here is to un-bundle the product and allow greater competition.






Following the cancellation of the insurance contract, we recommend that refunds should take into consideration any administrative costs of the intermediaries.


Lack of shopping around


In our view, consumers do not shop around for information on PPI both because of constraints within the current sales/distribution system and low consumer awareness about PPI. There is a need for more, better and clearer industry guidance.

Where consumers do “shop around”, in our experience the only differentiator on which they base their choice is price.

We strongly believe that providers should be obliged to inform customers at the point of sale that they do not have to purchase PPI when obtaining a loan. Furthermore, that if they choose to do so, they can buy PPI from another source.



Tertiary product


Purchases from the loan provider are tertiary products. As such, we believe that a greater degree of care is needed to ensure that the consumer purchases the product they require and not one that the loan provider wishes to sell.



Can the consumer afford PPI cover


In loan agreements and PPI the consumer should be advised what the policy does cover, what it does not cover, and the fact that there is a market to obtain alternatives.

We believe that it is the duty of the provider to advise the consumer on a number of key facts about the policy including price and relevance to their personal circumstances.



Claims ratio


We fully support the efforts of the FSA to raise standards in the PPI market. We recognise the disparity in claims ratios between PPI and other insurance products on the market.


High Commission ratios



There is evidence of high commission ratios and this is one factor for the high cost of coverage. The awareness of and having access to alternative products and advice will reduce the overall cost of the product, improve the extent of cover availability, ensuring that customers are treated fairly.



De linking Unbundling and Cost of PPI



We believe that de-linking is an essential tool in opening up competition.

Greater emphasis must also be placed on the extent of cover not just price, and insurance brokers are best placed to insure the right product is supplied. Greater competition will open up benefits to consumers in both cover and cost.