Supplementary memorandum submitted by
the Association of British Insurers (ABI)
I am writing to follow up on the ABI's session
last week and, in particular, to respond to your e-mail seeking
As we made clear at the hearing last week, payment
protection insurance is a valuable product for many consumers
who would be seriously exposed in taking out loans without it.
This has been recognised by both the FSA and the OFT.
The Committee raised questions about how well
it is sold. This is an area on which we and other trade associations
have been working. This work has led to:
the production of a consumer guide
on PPI which is subject to consultation with all interested parties
until the end of November;
a commitment to pay refunds when
the insurance is surrendered early. We have proposed model wording
for sales or policy documents on premium refunds to make it easier
for customers to understand how the refund will be calculated
and how much they can expect to receive;
commitments to improve training standards;
improved sharing of information between
insurers and providers, for example, so that people are not pursued
for bad debt while a claim under PPI is being handled; and
improved guidance for consistent
claims handling for use by insurersthis was published in
June this year.
You asked for further information on several
issues surrounding the provision of PPI, including PPI issues
for secondary loans, refunds on single premium PPI and, finally,
our comments on companies not allowing a PPI policy to be cancelled
unless the relevant loan had been repaid in full.
It is important that customers are aware that,
when they increase their borrowing, they must review their PPI
policy in order to match their cover with their repayment commitments.
It is therefore appropriate that customers are able to take out
PPI at the same time as they take out a secondary loan.
THE PPI IS
As noted above and confirmed in a press release
published today, the FSA welcomed the initiative agreed in March
2006 by ABI members, that a refund on a single premium policy
will be offered if the loan or credit agreement is repaid early
and no claim has been made. We have recently checked with all
our members who write PPI, and they have confirmed that they are
operating this policy.
THE PPI IS
ABI members have also confirmed that they will
offer a refund to customers who cancel their PPI policy, regardless
of the reason for the cancellation, unless a claim has been paid.
Most PPI policies are sold through lenders or
other intermediaries. We are, therefore, pleased that the British
Bankers Association has made the same commitment. We are not aware
of companies that refuse to cancel a PPI policy unless the loan
has been repaid in full. It should be noted, however, that some
lenders insist that the refund is used to reduce the outstanding
loan and that under Consumer Credit Act regulations, it may be
necessary to re-negotiate terms of the loan.
Finally, we are of course aware that the OFT
has today signalled its provisional intention to refer the UK
PPI market to the Competition Commission, as well as publishing
its analysis of the market for consultation. We are pleased to
see that the OFT recognises that there is competitive pressure
in the upstream market, ie between insurers competing for contracts
We look forward to now working with the Commission,
OFT and FSA on this issue, in order to achieve the best results