UK: CC Publishes Its Provisional Findings In PPI Investigation

Last Updated: 9 June 2008
Article by Jodie Smith and John Markham

The Competition Commission (CC) published on 5 June 2008 its provisional findings in the payment protection insurance (PPI) market investigation and a notice of possible remedies. These documents set out the CC's concerns regarding the lack of competition in the PPI market and a list of potential measures to address those concerns. The possible remedies being proposed by the CC are extremely draconian and include banning the sale of PPI at the credit point of sale, prohibiting the sale of single premium policies, the imposition of price caps and the publication of claims ratios.

Both the findings and the remedies are provisional and do not represent the CC's final decision. The CC is consulting on these two key documents with a deadline in both cases of 30 June 2008; this will be the final opportunity for industry players, and other interested parties, to make their views known. The list of possible remedies is comprehensive – the CC may be undecided on which precise remedies to implement, so that it remains possible to have an influence on the nature of the CC's final decision, even at this stage. It is therefore extremely important that distributors of PPI who have not been actively involved in the CC's investigation (as well as those who have actively participated to date) take this opportunity to respond to the CC's provisional findings and make sure that the PPI industry's voice is heard. The CC's deadline of 30 June is extremely short and work on responses to the CC will need to start straightaway.

The CC's provisional findings raise no issues with the companies that underwrite insurance, but focus on the distributors that sell PPI when they sell credit products. However, the remedies proposed by the CC will obviously have an impact upon both distributors and underwriters of PPI.

The CC's provisional view is that there are features of the PPI market which significantly restrict competition. The main points are:

  • companies face little or no competition when selling PPI to their credit customers, resulting in higher prices, with customers apparently overcharged by over £1.4 billion a year;

  • the bulk of the UK's 14 million plus PPI policies are sold to customers as an "add on" to a loan or other type of credit, giving sellers a "point of sale" advantage;

  • the vast majority of consumers do not know that PPI is available from alternative providers and consumers hardly ever shop around to find better deals;

  • those customers who do wish to compare PPI with other income protection insurance policies are hindered from doing so by, among other things, the complexity of products and the perception that taking PPI from a loan provider will increase their chances of being given credit;

  • the coupling of PPI with loans and the lack of information on alternative providers make it difficult for other providers to compete for customers; and

  • consumers who want to switch PPI policies to alternative providers or to alternative types of insurance policy are hindered in doing so.

The remedies that the CC is considering include:

Measures to increase information provided to customers and third party providers

  • Requiring PPI marketing and advertising materials to disclose the cost of taking out PPI and a statement of "key messages" that would inform customers of the existence of other PPI products, where to find comparative information, that PPI is voluntary and that it will not enhance chances of obtaining credit.

  • Standardisation of the information given to customers at the point of sale, such as price, to allow easier comparison of products across the market.

  • Requiring information about PPI and credit products to be provided to third party providers of comparative information for publication e.g. price, terms and claims ratios.

Measures to address point of sale advantage

  • Banning the sale of PPI at the credit point of sale and within a certain time frame after the sale of credit.

Measures to remove barriers to switching

  • Requiring that all policies be renewed annually.

  • Requiring an annual statement of the cost of PPI and a reminder of the customer's right to cancel the policy.

  • Remedies to address problems with single premium policies.

  • Minimum standards for elements of PPI policies that act as a barrier to switching (initial exclusion periods and pre-existing conditions and qualification periods).

  • Obligation to share information about customer claims, which could enable the possible introduction of "no claims" discounts.

  • Obligation to share information about the customer's credit card balance with an underwriter nominated by the customer.

Price capping

  • The imposition of price caps for a limited period, in parallel with other remedies, to enable prices to be brought closer to competitive levels.

It seems likely that the CC's investigation will lead to considerable changes in the PPI market and those active in this market should consider how their business will respond to such changes.

Please click here for the CC's PPI market investigation page.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 05/06/2008.

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