Insurance -
Loan Insurance - 12/06/2008
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It has been reported that consumers in the UK are being over charged by over 1.4 billion pounds a year from the sale of insurance policies to cover repayment of loans, should they become unfortunate and fall ill. Many feel that the industry price caps should be introduced.
The Competition Commission said in a report that was released on Thursday, that it was considering a long list of measures to increase competition for payment protection insurance industry (PPI), this may include the banning the sale of PPI at the same time a loan is being arranged or the possible introduction of a price caps.
Banks have started to prepare themselves for a significant clampdown on the insurance industry, but the introduction of a price-cap would be harsher than expected. An analyst as Pali International said
“It is unclear what the Competition Commission is going to do, but it has listed some quite draconian options”
The purpose of PPI is to provide covers for repayment of mortgages, credit cards, personal or other loans when people fall ill, injured or become unemployed. This is a highly profitable area for banks, and is estimated to be worth over 5 billion pounds.
If new restrictions are put in to place they could hurt profits for many banks such as: Alliance & Leicester, and most other UK banks. The Association of British Insurers have acknowledged that there are problems in the PPI market but said changes that have been suggested by the Competition Commission could destroy the market, particularly whilst we are facing a period of economic uncertainty.
There are more than 14 million PPI policies and most are taken out at the same time a product is bought. Consumers should be provided with more helpful and concise information about other policies and prices on offer, which can then help the consumer, make the right decision that is right for them.
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