Select Committee on Treasury Written Evidence

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 further information.

  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 insurers—this 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.


  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.


  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 with distributors.

  We look forward to now working with the Commission, OFT and FSA on this issue, in order to achieve the best results for consumers.

October 2006

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