Damning Report Into Ppi
Consumers are being ripped off over Payment Protection Insurance by £1.4 billion a year due to a lack of competition in the market
The Competition Commission said the market for the insurance, which protects credit repayments if the holder is unable to work or loses their job, is not competitive and enables distributors to charge higher prices.
Following a 16-month investigation into the PPI market carried out after a referral from the Office of Fair Trading, the CC wants better information to be given to consumers.
PPI is typically sold alongside a loan or credit card and around 6.5 million new policies are taken out each year, generating around £5 billion in premium income.
But the cover has come in for increasing criticism in recent years, after it emerged many consumers had been mis-sold policies they would never be able to claim on.
Citizens Advice found 85 per cent of its clients who had tried to claim on one of the policies had been unsuccessful, despite the industry claiming that just 15 per cent of claims are turned down.
The CC says consumers need to understand what they are buying and how much it costs relative to the credit agreement they are taking out. And it warned it is considering banning the cover from being sold alongside credit agreements altogether.
Additionally, it may introduce a price cap as a temporary measure to reduce the cost of insurance.
It is also proposing a series of measures to make it easier for consumers to switch between PPI providers, including banning the sale of so-called single premium policies, in which the cost for the entire term of the policy is paid up front and usually added to the debt being taken out.
Inquiry chairman and CC deputy chairman Peter Davis said: "We've found serious problems with the PPI market and consumers are paying for the lack of competition. The way PPI is sold as an 'add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.
"Distributors don't appear to compete much with each other on either price or quality of PPI, neither do they appear to do much direct advertising of PPI to win customers from each other."
The CC said the vast majority of the UK's 14 million PPI policyholders were sold the cover at the same time as they took out a credit agreement and made a snap decision on whether to purchase it without considering its true cost.
Many people were also unaware they could buy PPI from other providers and they rarely shopped around, while comparing prices was difficult due to the complexity of the product.
There is also a belief among consumers that buying PPI increases their chance of getting a loan, and the cover is also often bundled up into a credit agreement, making it difficult for other providers to gain a foothold in the market.