A major industry report on payment protection insurance by Advice UK reveals commission loaded, over-priced products and volume sales are combining to produce “endemic mis-selling” in the sector.Looking at the relentless drive for profits by the banks, the report accuses them of completely over- riding product suitability and affordability. One major problem is that intermediaries, who place 60% to 70% of new mortgage business, are only responsible for 25% of all MPPI sales at most – and that’s even though they may well have access to better products than lenders offer in terms of pricing and cover. The report, authored by Omnichek, an independent specialist in consumer borrowing and debt issues, brands banks as the biggest culprits, saying they aggressively use sales tactics which are virtually conditional to drive up PPI sales to their present level of an estimated 24 million policies, generating around 6bn of gross premiums, terms and benefits. Under the present market structure, the report says, only independent brokers can compete on an equal footing with banks. But worryingly the report adds: “Given that a mortgage is a consumer’s single biggest financial commitment, it could be expected that these two factors would produce the largest sector in terms of sales and premium volume; in practice it is hugely underperforming.” Several years ago the Labour government called for 55% penetration by the end of 2004. But today there are just 2.6 million MPPI policies in existence, representing just 23% market penetration and an estimated total premium spend of 1bn. And the report states: “Although mortgages account for 83% of consumer borrowing, MPPI accounts for only 17% of consumer spend on PPI overall. “This is an unacceptable imbalance. MPPI in the context of the creditor insurance market generally is reasonable value for money, hard sell free with little evidence of systemic mis-selling. There is every reason to believe that the presence of ‘independents’ provides genuine consumer choice and competition keeps premiums and commissions at acceptable levels.” But despite brokers being given a clean bill of health by the report, penetration levels into the market remain low. The report adds: “There is, however, evidence of genuine concern among intermediaries that they operate in a ‘best advice’ minefield and have potentially much wider exposure to mis-selling issues than banks and ‘white label’ outlets which enjoy ‘information only’ status and a less intrusive regulatory regime. “Whether or not such concerns are more perception than fact, there does seem to be substance to claims that when it comes to selling MPPI, it is not a level playing field out there which no doubt is a significant factor in brokers’ reluctance to increase their activity.”
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