Misselling of PPI alongside personal loans and credit cards has tarnished the reputation of far more valuable protection policies
While it is possible that the grandees of Lloyds Bank Group and Barclays heaved a sigh of relief on hearing the chief ombudsman Natalie Ceeney report that the rate of new payment protection insurance complaints being lodged with the Financial Ombudsman Service each day may have peaked, I suspect they know better than to think they are out of the woods.
The statement from Ceeney referred to the average daily new PPI complaint case count as being around 2,000 currently, down from last December when it regularly reached 3,000.
Quarterly figures published by FOS also showed a very slight fall from 133,000 new cases in the first quarter to 132,000 in the second quarter. Hardly a cause for celebration and you have to wonder what’s lurking in the rounding up or down of those totals.
You say peaked. I say plateaued.
That is not a matter of semantics, but of interpretation. I can understand why from an operational point of view, having left the spike of 3,000 cases a day behind will be at the front of Ceeney’s mind.
After all, the organisation had to take on over 1,000 new staff last year just to keep up. However what I see in the longer-term profile of the quarterly figures is a saga that will run and run, and continue to tarnish and stifle the market for legitimate mortgage and income protection products for a depressingly long time to come.
Here are the actual reported quarterly figures.
What lies beneath
It is only after having been rejected by the bank involved that a case can be referred to FOS. Last year the banks were apparently turning down around 80 per cent of PPI claims. So who knows how many are still in the pipeline to maintain this rate of inflow to FOS.
Over the same period, FOS has been resolving 78 per cent of cases in the customer’s favour, so it’s not surprising that there is a lot of speculation that the banks are now adapting to this fact, and that more of the current compensation applications are being settled directly by the banks themselves, rather than being rejected, only to resurface as FOS cases that have to be processed a second time, with very low odds of the banks winning.
Looking at the FOS statistics, in this light, suggests that the total number of PPI claims in play will almost certainly not have passed its peak.
That aligns with recent announcements by Barclays and others that they are now setting aside hundreds of millions of pounds in additional reserves specifically to compensate for mis-sold PPI.
Want the real picture? Follow the money.
Barclays alone, in its 2013 half-year results published on July 30th, increased its PPI provisions for the fifth time – by a further £1.35bn. It has now set aside compensation of more than £4bn.
So far, the big four banks – Lloyds, Barclays, HSBC and RBS – have set aside £13.2bn to reimburse customers PPI policy premiums – a huge amount when you think that we all gulped at the initial forecast of the payout totalling £4 billion or so. And it’s not stopping there.
The regulator recently reported that payouts are on the rise. Banks paid out more than £420m in compensation in both April and May, up from £375m in March and £409 million in February.
I doubt that any of us have a shred of sympathy for these institutions.
As a result of the banks’ many dubious practices recently come to light, consumers have lost trust in much of the financial services community and in many of the products we provide.
The mis-selling by the banks of PPI alongside personal loans and credit cards has tarnished the reputation the far more valuable mortgage payment protection and income protection policies. What was a perfectly sound product has become toxic by association and sales have plunged.
Light on the horizon?
Perhaps. I’m not talking about the chief ombudsman’s relief that the peak of 3,000 applications a day was not sustained.
That fact is virtually irrelevant to everyone but FOS. The longer term trend is what matters, and it indicates that it will be a long time before the PPI shadow lifts from the protection market as a whole.
No, my slight optimism stems from a number of media pundits who have recently started making the distinction between the circumstances in which PPI was mis-sold, and the legitimate role of the similar sounding products that we as providers and intermediaries deal in.
I’ve been encouraged, to see a trickle of pieces in the national personal finance pages recently that not only talk positively about accident, sickness and unemployment cover, but that also talk positively about the benefits of using a professional adviser to source this type of protection.
In my view, consumers benefit from professional advice when it comes to buying any form of insurance cover, but in particular ASU, as it is not a one-size-fits-all product! Consumers need to be confident that they have cover that meets their needs, that they are eligible for, and that will deliver if they have to make a claim.
Equally, intermediaries have to know that they can source fit for purpose quality products that are competitively priced, to facilitate this match.
While I can’t speak for others in the industry, I can promise you that the team here are committed to not only providing quality ASU products, so that intermediaries can be confident in selling this valuable cover – but also providing a quality service, so that you know your clients will be in good hands should they ever need to claim. And that’s all that we can do, the rest is up to you