OFT investigates mortgage protection deals

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The Independent Online

The Office of Fair Trading is to launch a formal inquiry into the payment protection insurance market, following a super-complaint from Citizens' Advice three months ago, warning of endemic mis-selling and lack of competition in the sector.

The OFT, which has 90 days to respond to super-complaints, said yesterday it had decided to heed the CA's warning and launch an investigation into the market next month.

It said it had already found some evidence that consumers had difficulty shopping around for PPI products, and that there were high barriers to entry for standalone providers to join the market. It added that PPI claims ratios were believed to be between 15 and 20 per cent - well below the norm for most insurance products. This would suggest that insurers are turning down an exceptionally high number of claims, or that consumers are being sold the product when they have no need for it.

John Fingleton, the OFT's chief executive, said: "PPI is a complex product, often bought almost as an afterthought. Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean that they are less likely to shop around for PPI. There is a high potential for consumer detriment - our study will look at whether consumers are getting a good deal or not."

PPI policies are most commonly sold alongside mortgages to protect policy-holders from having trouble with repayments if they are ill or absent for a long stretch of time. Bank and building society policies are often at least double the price charged by independent operators.

Teresa Perchard, a director of CA, said: "This is a clear signal that the OFT believes there is a case to answer. It is very good news indeed, and it makes the first step to a better deal for UK consumers. People buy PPI because they are looking for peace of mind. Given the scale of borrowing in the UK and the amount of money people spend on PPI, it is vitally important that they get a product that gives them this and meets their needs at a fair price.

"We would urge the industry not to wait for the outcome of the OFT investigation before reviewing their PPI products and making changes that will benefit consumers and give them a fair deal."

The industry said yesterday it welcomed the news, and would assist fully with the inquiry. Nick Starling, the Association of British Insurers' director of general insurance, said: "The FSA recently recognised a value of PPI in protecting against loss of income through redundancy and illness.

"The OFT's decision to carry out a market study should complement the work insurers and lenders have already undertaken to ensure that there is a good basic policy standard all customers can rely on."