Sam Dunn: Policies meant to protect you should do that
Too often, those who don't need it, or qualify for it, are sold PPI
Sunday 13 August 2006
The hunter has become the hunted. An interim report into payment protection insurance (PPI) by the Office of Fair Trading (see pages 16 and 17) suggests that its hawkers are squarely in the firing line. My hope is that they prove sitting ducks.
For years, lenders have proved excellent marksmen, bagging millions of customers for this contentious bolt-on cover.
Customers for personal loans and credit cards, among other products, attracted by the low interest rates being offered, have been easy pickings for the add-on insurance sold as a way to provide peace of mind.
And with low numbers of consumers making successful claims - a concern flagged up by the OFT report - many banks and building societies have been able to rely upon PPI to help bolster their eye-popping profits.
But during the past 18 months, consumer groups, charities and MPs have launched a series of protests about the cover, forcing lenders on to the back foot.
After a separate inquiry into store cards last year, the Treasury Select Committee asked the Financial Services Authority to launch an investigation into the less-than-transparent manner in which PPI is sold with these cards. Although it has so far declined to do so, the City regulator is now closely monitoring PPI.
Then, in late 2005, Citizens Advice lodged a "super complaint" about the insurance with the Office of Fair Trading - neatly dubbing its report "Protection Racket". It was then that the OFT decided to investigate.
If the Office decides to punt the industry over to the Competition Commission, serious changes to the way PPI is sold will follow.
We may never get that far - the OFT could simply make recommendations and leave it at that - but I hope that the Commission gets its hands dirty and pushes through meaningful change.
For starters, bank sales staff should not include PPI on quotes for loans or credit unless specifically asked to by the consumer.
Next, too many customers have to trawl through barely comprehensible lists of terms and conditions tucked away on websites to find out the fine details of PPI policies.
Exclusions and conditions should be clearly expressed and readily available - able to be sent immediately via email or mailed to arrive in the post the next day. They should also be spelt out during any sales pitch.
PPI can be genuinely useful when disaster hits, but its reputation has long been besmirched by problems with the way it is sold.
It is still often sold to consumers who have either enough cover elsewhere - through work or an income protection policy, for example - or who don't qualify; or don't need it. This must - and will - change.
PPI is now valid prey; the quicker it is hunted down, the better.
Faced with rising insolvency figures and bad debts, lenders have been wringing their hands: promising to be more circumspect and to tighten lending criteria. However, that doesn't appear to have put the brakes on promotional offers.
A neighbour recently returned from a holiday to discover two unsolicited credit offers of staggering proportions in her post.
There was £25,000 on the table from Abbey, and £100,000 from Capital One (for a loan secured on her property).
Until this sort of egregious mailshot is stopped, many consumers will continue to borrow money they perhaps hadn't intended to - with all its attendant problems.
Sadly, holiday-makers face the risk of running into chaos sparked by terrorist scares, strikes and natural disasters.
The fallout at UK airports from last week's alleged bomb plot scare should provide an urgent prompt for all to check - and double-check - the small print of their travel insurance.
It's worth noting that because last week's mayhem was caused by events outside their control, airlines are not obliged to pay any compensation to travellers. It was reassuring, therefore, to see them reacting rapidly to events and offering free rebooking or a refund to anyone experiencing either a cancelled flight or delays of more than five hours.
For the tens of thousands who had to miss a holiday due to cancelled flights or long delays and who aren't being looked after by a tour operator, the recourse is travel cover.
As a rule, anybody who decides to abort a holiday in the wake of such events is not covered by travel insurance. But policies with different providers vary hugely.
Only about half include cover for disruption in the event of terrorist activity - and last week's incident being "merely" a threat will make it more difficult to claim successfully.
The introduction of security rules demanding that valuable items such as laptops and mobile phones be kept in the hold of the aircraft - rather than with passengers as hand luggage - would usually void cover for those items if lost. But a number of insurers will extend your policy in such circumstances.
Insurers revise policy terms constantly so the golden rule - laborious as it might be - is to scrutinise your cover's fine print and contact your insurer about potential problems arising from the new arrangements if need be. Better to know where you stand now rather than later.
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