The future of PPI

by John Fitzsimons on 07 June 2011  |  0 comments
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Guest blogger Shane Craig explains why the end is not quite nigh for Payment Protection Insurance.

Payment Protection Insurance (PPI) has featured heavily in the national media in recent weeks.

Several well known high street banks and building societies have put their hands up to the fact that they sold the insurance – which is supposed to cover people when they cannot work due to circumstances like being made redundant, or being ill or having had an accident – knowing that the people who they sold it to probably did not need it, or did not qualify for payouts under the terms of the small print.

These major lenders were caught bang to rights. But it was a long journey, and they were only properly rumbled following an investigation which took many years, initially by the Office of Fair Trading, and then by the Competition Commission.

It was only after the latter placed mainstream lenders under huge pressure, after having racked up considerable sums from the public purse (so we were all paying for it) that several threw in the towel and admitted to widespread mis-selling.

Read £9bn of PPI compensation up for grabs! for more

A fair cop

Over the years high street lenders have been accused of being involved in some instances of encouraging customers to buy products which are not suitable, from inappropriate mortgages to questionable investments and now this latest PPI scandal.

The galling thing is, that rather than lenders rummaging through their war chests to settle the claims which are now pouring in, some have indicated that they intend to challenge the claims. People who have lost out, therefore, may yet have to wait while these culpable lenders consult their legal teams and see if they have to pay out compensation claims.

To be fair, Lloyds Banking Group has said it has set aside around £3.2 billion to settle claims – but many other lenders who have been active in this market for so many years are not it seems being so forthcoming.

This will do little to enhance reputations which have already been badly scarred by repeated incidences of mis-sold financial products.

Some companies – and we like to count ourselves among them – have treated consumers fairly and transparently, offering appropriate products which do what they claim to do on the tin.

There are further incidences – widely reported – where some companies who are alleged to have missold PPI were also successful in selling what is known as ‘single premium PPI’.

Now banned, this was a lump sum covering the cost of the insurance, which was added to the amount borrowed, so the customer ended up paying interest on both the insurance premium and the loan.

The product was expensive and of dubious use to policyholders, but mainstream lenders continued to sell it up until quite recently.

Hopefully, the compensation process will ensure those who are eligible for compensation will get back every penny.

An important future

So what lies in store for PPI going forward? Is it still relevant, and who needs it?

In the current economic climate, where we hear almost daily of major job cuts, PPI serves as a useful back up for those with mortgages and the usual domestic outgoings to cover.

Assuming you are over 18 years of age and below the statutory retirement age (cover ceases at age 65 maximum), are in permanent employment and work a minimum of 16 hours per week and have done so for at least 6 months prior to your policy start date – and you are not aware of any impending redundancies within the organisation you work for – then you are probably eligible for cover.

The self-employed – which make up around 4 million of the 20 million strong work force – are unlikely to qualify for unemployment cover, but may well benefit from accident and sickness insurance.

The first rule is to be really forensic when considering taking out cover: how the product works, what it covers and not just focusing on how much it costs.

PPI is not for everyone, but, if the terms and conditions are properly understood, and all areas of the policy are completely transparent – then it can serve as an effective financial back up should your employment circumstances change and the ability to protect your income and repay your loans/mortgages become compromised.

Shane Craig is managing director of independent PPI provider  Paymentcare.co.uk

What do you think? Is Shane right that there is a future for PPI? Or is it in its death throes? Let us know via the comment box below.