Payment protection insurance

Name of complainant: Citizens Advice

Date of complaint: 13 September 2005

Subject of complaint

The Citizens Advice (CitA) super-complaint reveals four main areas of concern for the OFT to consider:

  • consumers pay an excessively high price for payment protection insurance (PPI)
  • the protection consumers buy is partial, with many policies unreasonably excluding common causes of credit default
  • consumers are frequently mis-sold PPI, with evidence of high pressure and unfair sales tactics
  • the administration of PPI claims can be slow and unfair, and can leave consumers facing additional charges or serious debt enforcement action.

CitA's view is that these concerns arise because of a combination of market failure and regulatory gaps.

OFT response: 8 December 2005

The OFT has decided to carry out a market study to look in depth at the PPI sector because a number of factors, notably, the size of the sector, the complexity of the product coupled with limited understanding on the part of the customer, and the way in which the product is sold (as a secondary purchase to the credit product) point to a potentially high risk of consumer detriment.

The OFT has identified a number of issues which point to the sector not working well for consumers and which indicate the need for a more detailed examination:

  • consumers face difficulties in respect of (a) gaining information they need about alternative suppliers and (b) the technical nature and/or lack of transparency of the information available to them
  • there are high costs or other barriers to entry for stand-alone PPI providers
  • there is a wide degree of variation in pricing in the sector
  • gross profit margins appear high - although there is a lack of information on profitability, an indication of high profitability is provided by claims ratios - PPI claims ratios are estimated to be 15 - 20 per cent, which is low compared to other general insurance products, for example, claims ratios for motor insurance are 74 per cent and household insurance are 55.2 per cent.

Action following response

The OFT launched a market study into the Payment Protection Insurance.

OFT referred the Payment Protection Insurance market to the Competition Commission for further investigation.

Key documents




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