Braintree, Essex (PRWEB) June 17, 2009
Payment Protection Insurers have had their knuckles rapped by the Chairman of the Financial Services Authority, Lord Turner, for deserting customers at a time when they're needed most. He recently chastised providers for raising premiums and reducing cover when the likelihood of unemployment-related claims is set to increase, at the Association of British Insurers' annual conference.
PPI lobbyist Sara-Ann Burgess from independent firm Burgesses (http://www.burgesses.com) applauds his input, but suggests firmer action must be taken to clamp down on the disgraceful behaviour of credit providers who are happy to push restrictive cover onto customers when they clearly do not have their interests at heart.
She comments: "Only a couple of months ago it was announced that a number of insurers were hiking up costs by 40% and drawing up a list of sectors and professions they would not cover if redundancy occurred. Given that insurance is the delivery of a promise and policies are sold on the basis of that promise, I conclude some providers are selling under false pretences which in my view is fraud."
The ABI reports that PPI unemployment claims are soaring - claims at the end of January reached 32,099, a 203% increase on the previous year. Lord Turner in his speech indicated that the behaviour of PPI insurers was at odds with the FSA's principles of treating customers fairly.
He asked: "How many consumers would have taken up this cover if they had known that at the very time they needed the protection more, the price of it would significantly increase or the amount of cover decrease? This is an area where insurers must expect us to intervene to address poor consumer outcomes. And more than that they must think clearly about the impact of their actions on the sector's reputation."
"Indeed, agrees Sara-Ann. "We frequently hear of cases where providers have stooped to new lows in a bid to get more money from customers. The only thing that will stop these perpetrators is closer scrutiny, stricter regulation and steeper fines. Until then, they will continue to financially damage consumers and sully the reputation of the more ethical providers who are working to help people shore-up their finances at a time of economic crisis."
Where properly sold, PPI provides an invaluable financial safety net for those suffering hardship due to a loss of income because of redundancy, accident or sickness. It makes tax-free payments for up to a year, ensuring loan, mortgage, credit card and wider bill commitments are met.
However, when improperly sold, the consequences can be disastrous. The Financial Ombudsman Service recently awarded a Suffolk couple £27,000 in compensation after they were mis-sold PPI by Barclays homeowner-loan subsidiary First Plus - one of the UK's largest PPI payouts.
The couple were offered a £100,000 loan to pay off previous debts and help with bills, but were told that they could only borrow the full amount if they paid a further £25,000 for PPI. Prior to this discussion, they were advised that PPI was optional. The representative automatically calculated the loan repayments to include PPI - a move which has been outlawed by the FSA and Competition Commission - and failed to point out they could shop around for cover. It was only when they were struggling to make their repayments and approached another bank that they realised how expensive their premiums were.
According to their financial claims company, Brunel Franklin, the total insurance cost would have been £55,000, more than half the amount of the loan.
"This is a staggering price to pay for cover," says Sara-Ann. "Lenders can make obscene profits on single premium PPI - where the cost of the premium is added onto the overall loan amount and interest is charged on both. The sooner the FSA fines every firm that continues to sell this abhorrent cover, the better.
"Monthly policies, that can be cancelled at anytime, are far better as they give consumers more flexibility and substantially lower costs. What does concern me though is that First Plus is part of Barclays and claims are paid by their outfit in Dublin. Their decision-makers should have protocols in place that prevent this type of 'daylight robbery' occurring and they should use UK-based business to deliver their claims promise."
Barclays earlier this year challenged the Commission's rulings which included banning the sale of PPI at the time a loan is taken out and prohibiting the sale of single premium policies.
Sara-Ann concludes: "Given the outrageous profit they appear to be making from these policies, it's not surprising they were quick to delay the timetable for change. The Commission's recommendations were meant to come into force next year, but this could be put back now, giving them a wider window of opportunity to profiteer at customers' expense. Greater FSA enforcement is needed now."
Standalone providers such as Burgesses and British Insurance (http://www.britishinsurance.com) are widely recognised as offering monthly policies that are substantially cheaper than High Street lenders, despite providing cover that has additional benefits and support mechanisms.