PPI Complaints
PPI Complaints – Following consultation paper CP09/23, the FSA is requiring firms to make redress on their PPI complaints, and it is estimated that 185,000 complaints cases will have to be re-opened and re-investigated. At what cost to both the industry and regulator? The FSA expects that many reviews of PPI complaints will result in cancellation of policies, with premiums being returned to customers with interest. How might this affect, for example, a firm’s professional indemnity insurance? Is the FSA's decision reasonable and proportionate, or is it heavy-handed regulation? What is the likely impact on the providers of PPI and on PI providers who service them?
Payment Protection Insurance (PPI) is an area of the financial services market that has had its fair share of knocks and knockers, some with just cause. In order to move forward it is important for the industry to try and rebuild consumer confidence in PPI by delivering products that do what they say, backed up with good customer service. So with this in mind PPI firms and distributors must be ready to operate in a new world and this includes the implications of the standards established by the Financial Services Authority (FSA)
PPI has never been far from the headlines in recent times and its reputation has continued to come under fire. So there was little surprise that in an announcement back in January 2009, the Competition Commission (CC) banned all banks and intermediaries from selling point of sale PPI and single premium policies from 2010.
In its final report the CC concluded that businesses offering PPI alongside credit face little or no competition when selling PPI to their credit customers. To address the lack of competition, the CC will shortly be initiating a package of measures to introduce competition into the market including; a ban on the sale of PPI during the sale of the credit product and for seven days afterwards, a prohibition on single premium policies and personal PPI quotes. Annual statements and measures will also be implemented to make sure that improved information is available to consumers to make it easier for them to compare and search for products and switch policies at a later point.
The vast majority of the
The CC measures will come into force during 2010, with the information remedies in place by April 2010 and other measures by October 2010, each to coincide with Government common commencement dates for new legislation and regulation.
The CC has liaised closely with the FSA who takes the lead on regulating sales practices and tackling mis-selling, as well as the Financial Ombudsman Service (FOS), who deals with consumer disputes. In its annual report FOS has highlighted the number of new complaints brought to it by consumers.
The total number of new cases brought by consumers to the ombudsman in the current financial year (2009/10) looks likely to exceed the estimated figure in the FOS budget of 150,000 by 11%. This reflects continued higher levels of complaints about PPI than originally anticipated (42,700 PPI complaints are now forecast for 2009/10, compared with a figure of 25,000 in the budget). The number of PPI complaints referred to the ombudsman service is expected to continue to rise to 46,000 cases in 2010/11.
As outlined the FSA has made no secret of how closely it has been working with the FOS and the CC to review how PPI was being sold in the retail market place. Following consultation paper CP09/23, the FSA is requiring firms to make redress on their PPI complaints, and it is estimated that 185,000 complaints cases will have to be re-opened and re-investigated.
to ensure fair and reasonable decisions have been made that do not cause financial detriment to the consumers affected. The reasoning behind this move is based on the papers published by the three authorities during 2008 and 2009.
However, this instruction could have some serious financial consequences for the firms involved and their Professional Indemnity (PI) insurers. Although it is possible that PI insurance will cover providers who may be found to have mis-sold policies direct; it is not clear from the research undertaken whether PI insurance will provide the levels of financial protection that brokers and sellers may require.
To quote one industry source ‘the jury is out on this issue as there is no clear direction from the PI industry as to how they will manage claims made as a result of brokers and other sellers mis-selling PPI to the public’.
This should be a matter of grave concern to all industry interests. Although there is always an argument that reviews of this nature will weed out the bad apples within the industry, without PI insurance support this new review may also have a major impact on brokers and sellers who, possibly inadvertently, have been caught up in this matter due to the markets in which they operate.
Financially it could cripple some smaller firms who may not get the support from the PI insurers they require.
No one is saying that there was not a need to review the PPI sector and to provide further controls within in but without the fairest financial and regulatory support there is a risk that the availability of PPI may be greatly reduced. PPI is a policy that a large number of consumers have safely purchased and claimed against. It has rescued needy consumers from serious financial problems at a time of great need for them. There has rarely been a time when consumers are in greater need for such a product but in these challenging times perhaps the greatest challenge of all will also be to restore confidence in this product. Time may well bring trust as consumers experience better buying conditions and less miss-selling scandals but this will not be an easy or quick win. The sector, as a whole, must work hard to raise the perception of the market starting from now.
But without clearer direction from the PI industry it is difficult to see how the PPI market will survive in a suitably flexible form that meets the needs of not only the regulator but the consumer as well. Providers may well stay in the market but the days of the broker and seller acting on their behalf could be over unless all parties come to some agreement over the action required and protection provided by the PI sector.
For further information please visit our PPI page