Parliamentary Commission on Banking StandardsWritten evidence from the Financial Services Authority

17. The FCA’s approach to such products will be different from that of the FSA:

The FCA will have a new competition objective and duty. These require the FCA to identify and address competition problems, like those of PPI, and adopt a pro competition approach to resolution. Competition provides incentives for firms to provide better products and services.

The FCA will have a bolder organisational culture, will have a new, more intensive style of supervision, and will improve the way it gathers intelligence about firms, consumers and products. It will also carry on our new approach of directly intervening in the design of products rather than focussing on distributors at the point-of-sale, and will have the power to make temporary rules (with a maximum duration of twelve months) before consulting where it identifies a particularly significant and urgent threat of harm to consumers. The FCA will be less tolerant where it identifies risks to consumers and will be prepared to go further in challenging firms where it sees major structural weaknesses in products.

18. A recent example of the early intervention approach set out in paragraph 17 is our action on traded life policies. These are complex high risk products that are not suitable for the majority of retail consumers. We have issued guidance which advises that these should not be promoted to this type of investor.

A—PPI: Product and Profitability

19. PPI was designed to be sold alongside loans, mortgages or credit for retail goods, to cover loan or debt repayments in the event that a purchaser’s loss of income eg through sickness or accident resulted in them being unable to pay their debt. Each product feature would have different eligibility criteria contained in detailed contractual information. PPI was widely sold by banks, other credit providing institutions, and brokers.

20. As set out in the graph below, sales of PPI peaked in 2004 and started to decline from 2005. The BBA estimated 45 million policies were sold8 in total by banks (and we estimate around 53 million policies were sold across the market). From our calculations the Gross Written Premium for policies sold by banks was about £44 bn. One of the reasons for the high profits was due to claims being low meaning over 80% of the premium covered costs and commission. We estimate claims were about 16% of Gross Written Premiums from 2002 to 2006.9 Thus PPI was a significant contributor to distributor firms’ profitability.

21. The Competition Commission Final report in January 2009 contained data on distributors’ market share between 2006—2008. In 2006 the 12 largest distributors of PPI were responsible for about 85% of the policies sold by Gross Written Premium (GWP). The results in 2007 were similar to 2006. Of the 12 largest distributors, four firms were responsible for the majority of sales, Lloyds TSB and HBOS (now Lloyds Banking Group), Barclays and RBS Group (including Nat West).10

22. In our view, the main root cause of PPI mis-selling was

A culture within banks and other firms that focussed on profit over customer outcomes.

Badly designed and poorly managed incentive schemes that led front line sales staff to focus on hitting targets and earning bonuses, rather than putting customer interests first.

Sales staff not understanding how the product worked and what exclusions applied.

The complexity of the product which was not suitable for everybody, with some consumers simply not eligible for cover.

Some firms gave the impression that PPI was a condition of purchase of a loan or mortgage, or adding it to the loan, without the consumer’s knowledge.

Information provided was not straightforward, it was detailed, onerous, with complicated terms and conditions.

The product was a secondary sale with another consumer purchase (for example, a loan or mortgage) and therefore was not the main focus in a sale.

The way the product was sold did not allow consumers to shop around, with the result that prices were high.

B—THE FSA’s Approach

Introducing the new statutory regime

23. In December 2001, HMT announced the FSA would assume responsibility for regulating insurance selling and administration, to commence with the implementation of the European Union’s Insurance Mediation Directive in 20045. This replaced the self-regulation of the Association of British Insurers code and General Insurance Standards Council.11

24. At the time, the FSA’s priority was to prepare for the new regime and in 200203 issued consultation papers on the proposed Insurance Conduct of Business requirements (ICOB).

25. The FSA was aware of concerns about PPI raised during the consultation period by the Treasury Select Committee (concerning credit card PPI12), Financial Ombudsman Service, Which? and the National Association of Citizens’ Advice Bureaux. These bodies raised concerns about the high penetration rate of PPI, aggressive selling, and policyholders finding they were not in fact eligible for cover when trying to claim, and argued that PPI should be treated as a higher risk product. The industry rejected such criticisms as anecdotal and not methodologically robust.

26. PPI was included in the same general FSA requirements for lower risk insurance products, which the FSA believed would be sufficient to address the concerns about specific poor selling practices raised in consultation.

Early supervisory approach and thematic work

27. Early in 2005, as a result of the concerns raised about PPI sales during our consultation on establishing the regime, we made it a priority to conduct a thematic review of PPI firms’ compliance with the new regime. Over the next two years the FSA conducted two further extensive thematic reviews. These thematic reviews looked at firms widely across the market, including some banks and those firms that had not previously been authorised by the FSA. Our aim was to increase standards across the general insurance sector. In 2005 the FSA did not appreciate the full extent of PPI sales and the profits made by high street retail banks, or the associated market failures. The true picture was not clear until the OFT and Competition Commission’s work was available (2007–2009).

28. This first thematic review began less than two months after FSA assumed responsibility for general insurance regulation. It involved a small number of mystery shops (52 across 19 firms), and a large number of supervisory visits to a wide variety of firms (including 4 major banks) to assess their sales practices.

29. The findings were published in November 2005 and found the same issues in most firms in the sample and our conclusion was that poor sales practices existed. Many of the poor selling practices and associated breaches of rules and principles which featured in later debates with the industry were already identified by our review and clearly set out in the report. The report was accompanied by a letter to the Chief Executives (of firms included in the thematic review) reiterating the messages about failings and the need for improvement. Two enforcement actions resulted from this first thematic work.

30. The FSA then considered a number of actions including whether to:

make additional rules about PPI;

intervene in the PPI product’s design; or

make more radical rules to address the apparent market structure problems, such as stopping PPI being sold at the same time as credit and loans.

31. On balance, these options were rejected at the time because:

The ICOB regime was still relatively new.

More detailed selling rules would run counter to our desire to move towards principles-based regulation and our work on Handbook simplification (a key regulatory priority at the time).

The industry should be given a chance to improve its performance through its own initiative. (A recent success had been the industry solution to the long standing problem of contract uncertainty in the London Market, which the FSA had helped to broker).

The OFT was considering a super-complaint about the lack of competition in the sale of PPI (from the National Association of Citizens Advice Bureau), and seemed likely (from our discussions with it) to make a referral to the Competition Commission.

32. During December 2005 to April 2006, we held a number of meetings with trade associations (including the British Bankers Association), challenging the industry to “improve its own standards and to move decisively towards putting in place the elements of a considerably more competitive market”13. However, the eventual industry proposals were weak and indicated little willingness on the part of firms to change their behaviour.

33. The OFT began its PPI market study on 3 April 2006 and the FSA liaised closely with it in relation to this, in particular providing material from its thematic review.

34. We decided to do second phase of PPI thematic supervisory work, reviewing sales practices in 40 firms drawn from banks, mortgage brokers, credit brokers, car dealers and retailers. In October 2006 we published a report14 which noted some improvements in areas ancillary to the sales process (eg training, compliance monitoring, and staff remuneration schemes). However we made clear that in relation to sales processes, and in particular information disclosure to customers and advice, there remained “major weaknesses which go to the heart of the culture surrounding PPI sales…..On the strength of our findings, the industry has further to go to demonstrate that customers really are being treated fairly in this market.”

35. Seven enforcement actions were taken forward from the second phase thematic work.

Our enforcement action against these firms was intended to send a clear message to all firms operating in the PPI sector about unacceptable practices and our expectations.

36. In addition, in October 2006, the OFT published its market study15 (which the FSA had liaised with them about). This study concluded that PPI was an inherently complex product, firms did not make it clear to consumers that PPI was optional, consumers did not actively shop around, there were barriers to switching providers, competition was limited, and cancellation refunds did not tend to reflect cost or consumer risk profile, reinforcing switching barriers.

37. After considering its own and the OFT findings, the FSA again reviewed its approach to PPI. On balance, we concluded that PPI selling standards remained low, and needed to be driven up through further thematic work and potential new PPI-specific outcome-focused ICOB rules, in areas where the Principles in the FSA Handbook did not seem to be impacting firms’ conduct sufficiently and industry initiatives were unlikely to deliver improvement;

38. However given the OFT’s likely referral of PPI to the Competition Commission (which was duly made in February 2007), we took the view that it would be inappropriate, at this time, to introduce more radical rules to reshape the PPI product and structure since these would risk pre-empting the Competition Commission’s own conclusions and remedies and so might need changing later.

39. A third phase of PPI thematic work began in 2007 This was one of the largest pieces of thematic work in the FSA’s history, with review visits to 150 firms selling PPI and

150 mystery shops. Between them, the firms we visited sold 1.6 million PPI policies a year. The work was expanded in 2008 to a further 271 mystery shops of face-to-face sales of single premium PPI sold alongside unsecured personal loans, and the results were combined with the 114 similar shops from the earlier thematic work, making a total of nearly 400 assessments. The results were disappointing.

40. We found that firms relied on documentation to explain costs and exclusions without giving a proper verbal explanation:

There had been little or no improvement in the disclosure to customers of price and policy details, or about the eligibility and suitability for the customer.

Around two-thirds of the firms visited and nearly all of the firms mystery shopped failed to satisfy the ICOB requirements; and

Around a third of the firms visited and less than half of firms in the mystery shopping exercise failed to ensure that customers were given the basic information necessary to make an informed decision about the product.

Many of the PPI products did not appear to be designed to meet the needs of the customers to whom they were sold.

41. In total these findings raised serious concerns about both sales practices and the lack of response from the industry to our calls for improvements.

42. The findings from the thematic review led to a number of substantive actions against and by firms. Eleven firms stopped selling PPI either permanently or temporarily until such time as they got their sales processes in order and/or retrained staff, and three firms cancelled their FSA authorisation to sell PPI. In addition, four firms reviewed past PPI sales to ensure they were appropriate (these were in addition to any reviews carried out by firms already in enforcement).

43. In December 200716, we made new rules for all insurance products, including PPI This reduced a significant number of detailed ICOB rules in favour of increased reliance upon the content of the Principles (consistent with the FSA’s wider approach to more principles based regulation at that time). The new rules did provide additional details in particular areas, specifically protection contracts, including PPI, where it was felt that additional rule-making was required in order to target poor practices.

44. We published an update to our report on our website in September 2008 and noted that in 2005, 2006 and 2007 we had issued clear guidance and warnings to firms selling PPI, so we were disappointed to discover the results of the latest mystery shopping of single premium PPI to be worse than expected. We warned that firms needed to do considerably better in order to achieve the right consumer outcomes, and that we would be escalating our regulatory intervention to deal with on-going non- compliant sales practices.

45. As a result of our thematic work, we took enforcement against 23 firms and 4 individuals for PPI sales failings, mostly following the second and third thematic phases. The fines for these firms total over £12.6 million. The largest fine was issued to Alliance and Leicester (£7 million). However, financial penalties were not sufficient on their own in changing firms’ behaviour. In 2010 we adopted a new regime designed to increase the penalties we impose in enforcement cases. In consulting on this new regime we stated that one of the key drives for increasing penalties was that we had “repeatedly seen breaches in particular areas (for example the sale of Payment Protection Insurance and market misconduct) where insufficient account has been taken of previous enforcement action.”17

Communications

46. The FSA has issued a significant number of communications to the industry about PPI mis-selling and complaints handling. In total we have issued six reports on sales failings, an open letter to firms on common sales failings, and two consultation papers and a policy statement on complaint handling from 2004 to date.

47. A consistent industry response to our communications has been that there was no genuine problem around PPI sales and that there are only perceived weakness because the FSA inappropriately and retrospectively raised expectations of what was required at the point of sale.

48. The industry criticised what was alleged to be the retrospective and unduly prescriptive thrust of failings concerning disclosure, in particular concerning oral disclosure of various elements of information at the point of sale including that PPI was optional, its price and premiums structure, and details of exclusions and limitations. It was felt that this was an additional and unspecified requirement that was inconsistent with specific ICOB/ICOBS rules requiring only disclosure in writing.

49. In contrast, we had stated already in our 2005 report that firms emphasised the benefits of the PPI in the oral descriptions given to customers but said little on the limitations or exclusions, and thus failed to give balanced information on the policy. We also noted that customers’ attention was often not drawn to the importance of reading the Policy Summary, despite this being explicitly required by the rules.

50. In response to these criticisms we continued to set out our views for firms including in our new tougher requirements for PPI in ICOBS and a new regime for financial penalties as mentioned above.”18

Competition Commission’s findings

51. On 29 January 2009 the Competition Commission published its final report, which confirmed the various market failures in the PPI market. The report set out the remedies it had decided to take forward, including prohibitions on selling PPI at the credit point of sale and on single premium policies.

52. We discussed our mystery shopping findings and the Competition Commission’s report and proposed remedies with the banks with the purpose of securing a change. A number of them then announced they would stop selling single premium PPI with unsecured personal loans by the end of January 2009. Some of these firms, along with other market players, now offered or planned to offer regular premium PPI instead of a single premium product.

53. On 23 February 2009, we wrote a Dear CEO letter to all firms still selling single premium PPI with unsecured personal loans asking them to stop selling by 29 May 2009. Firms complied with this request.

54. The Competition Commission’s remedies were initially successfully challenged by the industry with a judicial review (brought by Barclays and supported by Lloyds Banking Group) this was bought on the grounds of the Competition Commission’s failure to adequately take into account the potential convenience to customers of buying PPI at the point of sale of the loan. The final outcome of this review was the remedies remained mostly unchanged with the exception of a ban on selling PPI alongside retail (eg household) consumer goods.

55. Given this sudden ending of sales of the product we had mystery shopped; the main significance of those findings now lay in our increasing focus on securing fair redress for past mis-selling, the history and details of which we turn to below.

C—Seeking Fair Redress For Consumers

56. By the end of 2007 we began to consider more deeply the legacy poor sales practices and the potential loss consumers may have suffered, and whether we needed to do more to assist relevant consumers to obtain redress. We:

undertook further analysis to assess the evidence for PPI mis-selling and resulting consumer detriment;

wrote (in spring 2008) to a number of main PPI firms about the timeliness and quality of their handling of PPI complaints compared to peers;

liaised with the Financial Ombudsman Service (FOS) regarding its work on PPI complaints; and

assessed 131 sample PPI complaint decisions from four significant firms. The results were poor and indicated failings in the firms’ complaint handling processes likely to cause significant detriment to consumers (eg relying on a formulaic approach to rejecting complaints).

57. In the course of 2008, the Financial Ombudsman Service became increasingly concerned by the volume of PPI complaints it was processing and upholding in favour of the consumer. The Financial Ombudsman Service believed this showed poor complaints handling by firms and also widespread mis-selling, for which the Financial Ombudsman Service believed a consumer redress scheme under section 404 of FSMA19 might be a solution. A formal public letter was sent by the Financial Ombudsman Service to the FSA detailing concerns on 1 July 2008.20

58. In autumn 2008 we considered the evidence about potential consumer detriment from PPI mis-selling and the various actions we might take to address it, including a s404 scheme. We concluded that a package of measures centred on fair complaint handling was a better and proportionate choice.

59. Our preferred approach was to combine specific action against some major firms, with improved PPI complaint handling for the industry in general, including the fair treatment of potentially affected consumers who had not complained. We kept this approach under review during the following two years and believe it was the appropriate approach to take (including in light of changes to s404 as a result of the Financial Services Act 2010).

60. Through the winter of 200809, we gave a group of industry representatives, made up of trade associations,21 the opportunity to agree and commit to improved PPI complaint handling standards. Their proposals did not include how to approach the fair redress of upheld sales complaints, nor about root cause analysis of potential recurrent sales failings and pro-active action towards affected non-complainants.

61. By May 2009 we concluded that the attempt to work with industry was not proving successful and that we should publish Handbook guidance on the fair handling and assessment of PPI sales complaints. The guidance we consulted on in September 2009 set out the approach firms should take when assessing PPI complaints, and our view of the underlying deficiencies in their PPI complaint handling, including:

deficiencies in the assessment and investigation of PPI complaints. For example, giving too little weight to the particular events and circumstances of the individual sale;

deficiencies in relation to complaints-handling arising out firms’ failure to consider appropriately PPI sale standards (including the FSA’s Principles); and

deficiencies in assessing fair redress where a complaint was upheld eg not considering what the consumer would have done but for the firm’s breaches).

62. In addition, we published an open letter22 to industry, with a list of poor PPI sales practices that we believed, from our previous work, were or had been commonplace. We considered it would assist firms, including when assessing complaints.

63. The proposed guidance also stated that a firm should analyse the root causes of complaints it received in relation to sales of PPI. If those complaints suggested recurring or systemic problems in the firm’s sales practices, it should consider whether a wider redress programme was required so that non-complainants, who may have been affected by those sales practices, were treated fairly.

64. In response, the industry made a number of criticisms on both our complaint handling guidance and the open letter. Some parts of the industry also threatened Judicial Review, including on the procedural grounds of a too short consultation period (1 month) and inadequate cost benefit analysis.

65. Following the feedback we received, we re-consulted in March 2010, providing a longer consultation period, and a more detailed cost-benefit analysis, including much higher estimated costs and benefits, which reflected the latest much increased trends in PPI complaint volumes. We also made amendments to the common sales failings in the open letter which we also consulted on.

66. Many industry responses made continuing criticisms of the revised draft guidance and the revised open letter, including further expressions of doubt about the existence of problems within the PPI market. However, after careful consideration, we concluded most of these criticisms did not have merit. We published our final Handbook provisions and a final version of the open letter in August 2010).

67. In response, in October 2010, the BBA and Nemo Personal Finance Ltd launched a Judicial Review of the Financial Ombudsman Service and the FSA. The FSA was reviewed on the substance of our Handbook provisions concerning PPI complaint handling and the fair treatment of non-complainants.

68. The case had wider implications, over and above the importance of our Handbook provisions themselves, for the FSA in setting a precedent about the scope and extent of our powers and was therefore an important case to defend.

69. The proceedings were heard on 24 January 2011, with a judgment, in favour of the FSA and the Financial Ombudsman Service, handed down on 20 April 2011. The judge rejected the BBA’s argument and upheld that the provision and guidance were lawful. The BBA and Nemo chose not to appeal.

2011–2012 (our current work on redress)

70. The FSA recognised that there was a potential significant risk for the redress exercise to become disorderly leading to further poor consumer outcomes. Therefore, we decided that we needed to remain engaged in the exercise to ensure firms took their obligations seriously, and that consumers received redress where appropriate. To ensure this, we have been taking forward two main work-streams. Our main effort is the supervision and oversight of firm’s complaint handling and root cause analysis.23 This involves:

educating and assisting firms in understanding our complaint handling measures (early work now completed);

reviewing complaint handling processes to identify firms that appear to be taking an approach that is not in accordance with our handbook provisions (preventative work now completed);

outcomes testing to identify whether firms are actually providing good outcomes to complainants.

71. Since January 2011 firms have paid over £7 billion in redress.

72. We have also started assessing the quality of root cause analysis carried out by firms, the nature and extent of pro-active action taken by them toward those customers who did not complain but who have been affected, and the nature of remedies provided to these consumers. Firms have been delayed by the challenges they face in handling the large volume of complaints since the Judicial Review, but firms are now beginning to pilot their proactive customer contact and we expect progress on this to accelerate over 2013.

73. The second main part of our work is the supervision and oversight of past business reviews. With sales and complaints standards now settled by the Judicial Review ruling, our work now involves agreeing the shape of the reviews to examine the past and working with the firms to oversee the progress and effectiveness of these. As with the root cause analysis work, the time table has been affected by the volume of complaints received by the firms, but we expect firms to start this work in 2013.

74. Overall, we expect that our work with firms to ensure appropriate complaint handling processes are in place and the completion of the past business reviews and pro-active customer contact exercises will extend into 2014.

D—The FSA’s Current Approach to Product Bundling and Cross Selling

75. Whilst the market for PPI has contracted markedly since our programme of redress and the Competition Commission’s remedies package, we have identified some new products which occupy a similar position in the market to PPI.

76. Short-term income protection (STIP) products are contracts of insurance which perform a similar function to PPI in many ways, but where a payout is linked to a customer’s income rather than a specific loan. The product was already established in the market, but has only recently has been offered by many of the major banking groups. STIP is subject to our rules and the Competition Commission’s remedies in the same way as PPI.

77. In addition, we are aware of product features called debt freeze, which are terms included within loans. In economic terms, these product features can provide a similar function to PPI contracts, in that they can suspend the requirement for a customer to make repayments on a credit agreement in the event of certain circumstances occurring. However debt freeze products, fall outside the scope of the Competition Commission’s remedies and, in most cases (other than first charge motgages) fall outside FSA regulation (being subject to regulation by OFT).

78. In November 2011 we published draft guidance (jointly with OFT) setting out our expectations for the design and distribution of products designed to replace PPI (including both STIP and debt freeze).24 This guidance will help firms mitigate the risks associated with such products to help achieve good outcomes for consumers. We aim to publish finalised guidance shortly.

79. We are aware of some other products which are sold as bundles by banks. Most notable amongst these are fee-paying (“packaged”) bank accounts, where banking services are provided with a bundle of insurance or other products and services. We are monitoring the market for these accounts, and are examining possible measures (including possible new rules on eligibility and suitability for packaged bank accounts) to enable easier comparison and shopping around in this market.25

80. We are aware that bundling and cross-selling of products may present particular challenges in terms of consumer protection. There are a number of other examples of products which are bundled or cross-sold by banks, which include offset mortgages (which are a bundle of a mortgage and savings account and sometimes a current account), or investment products which are bundled with savings accounts. Whilst we have not identified all of these products as presenting a particular risk, we would consider the design of all bundled and cross-sold products, their appropriateness for a particular target market, and the sales practices and processes adopted in selling them, as part of our everyday supervision of banks. As such, they will be subjected to our new, more intensive supervision, and our increased focus on product governance.

E—How The FCA Will Act Differently

81. As we identified in our document, Journey to the FCA, one of the key lessons we have learned from market failures such as PPI is that it can be much more effective to intervene early, to pre-empt and prevent widespread harm from happening to consumers in the first place, rather than clearing up after the event.26

82. The FCA has a competition objective and duty. These require FCA to identify and address competition problems and adopt a more pro competition approach to regulation. Competition is vital in delivering better products and services and the FCA will take a range of actions under our competition mandate to bring about markets where consumers engagement with products drives competition, and to get firms to focus on meeting consumers genuine needs.

83. The FCA’s approach to such products will be different from that of the FSA. The FCA will have a bolder organisational culture, will have a new, more intensive style of supervision, and will improve the way it gathers intelligence about firms, consumers and products. It will also carry on our new approach of directly intervening in the design of products rather than focussing on distributors at the point-of-sale, and will have the power to make temporary rules (with a maximum duration of twelve months) before consulting where it identifies a particularly significant and urgent threat of harm to consumers. The FCA will be less tolerant where it identifies risks to consumers and will be prepared to go further in challenging firms where it sees major structural weaknesses in products.

84. The FSA’s new conduct supervisory approach is focused on early identification of mis-selling by assessment of firms’ business models and their culture.

85. With this in mind the new supervisory framework for the largest and most significant firms, including the biggest retail banks, analyses business models to see where they are currently making their profits and in which business lines they want to grow their business. This approach allows us to concentrate on the areas within a bank which are most likely to cause consumer detriment. This may be because margins are growing at such a rate as to suggest that we should take a closer look in a particular area to ensure there are no problems or because past experience suggests that there is a high risk of consumer detriment arising in the area, for example, because we know customers may be imperfect buyers (eg complex protection products, bundled products or infrequent purchases).

86. On culture, a key part of our strategy is to ensure that firms put consumers at the heart of their business model. This means that firms must understand and appreciate their customers’ experience of dealing with them. One of the ways we will achieve this is by carrying out a root cause analysis of key conduct related issues occurring in a particular firm and feeding this back to the firm’s Board so they have a clear understanding of what needs to change in the way the firm conducts its business in order to address the root causes we have identified.

87. As well as above, there will also be more emphasis on thematic supervision, for example our project on financial incentives27. It addressed a key factor in PPI mis- selling where sales staff were heavily financially incentivised to sell products like PPI.

3 December 2012

Annex 1

TIMELINE

Annex 2

GRAPHS

The following graphs show the FSA’s estimates for gross written premiums, claims, profits and redress paid by banks from the period 1996 to date. Graph 1 shows data from the largest PPI distributor banks and graph 2 shows data for all banks (except HFC and MBNA). Assumptions used in calculating these figures are out lined below. This data was used to support the cost benefit analysis for Consultation Paper 10/6.

Graph 1

DATA USED FROM THE FOLLOWING BANKS—SANTANDER, BARCLAYS, LBG, HFC, HSBC, MBNA, NATIONWIDE, NATWEST, NORTHERN ROCK AND RBS. PRE-TAX PROFIT = £21 BILLION

Graph 2

DATA USED FROM ALL BANKS EXCLUDING HFC AND MBNA PRE-TAX PROFIT = £19 BILLION

Assumptions

Estimated GWP—actual figures only for top tier banks from 2007 onwards; other figures interpolated backwards from these to 1996, using percentage growth estimates from annual Mintel reports.

Estimated Pre Tax Profits—for years 2003/04/05/06/07 we use actual profits to GWP ratios set out in the Competition Commission report, with these ratios applied to our own GWP estimates. For 2008, we used an estimated profit to GWP ratio of 60%. For 2009, 2010, and all years before 2003, we used an estimated profit to GWP ratio of 40%

Estimated Redress—using actual figures collected from firms for 2007 and 2008, and 2011 and 2012 and estimated for 2009 and 2010.

Estimated administration costs—analysis calculating average admin cost as around 12% of redress and provisions