The Financial Services Authority took over regulation of sales of general and non-investment life insurance in January 2005 and high on its list of priorities from the outset was payment protection insurance.

Payment protection insurance (“PPI”) is insurance cover sold to borrowers in the event they become unable tomeet repayments due to death, sickness, accident or involuntary unemployment. Typically sold alongside credit cards,mortgages and personal loans, it is often also sold by retailers of cars, electrical and other goods in conjunction with credit arrangements.

Consumer bodies have criticised selling practices surrounding PPI, including the level of commission and the inadequate provision of information leading, they say, to inappropriate sales.

In January 2007, the FSA announced the focus of the next stage of its review of the industry (or, in FSA-speak, thematic work). This will involve testing industry progress on ensuring that customers: 

  • are told that PPI is optional, where this is the case 
  • receive clear information about the product and what it will cost 
  • are given the assistance they need to be clear about what they are eligible for under the policy and what the exclusions are 
  • are, where advice is given, recommended a policy thatmeets their needs 
  • are offered a fair refund if they cancel their policy

The FSA has already taken action in this area, having issued Final Notices relating to failures in PPI selling practices to eight firms since September 2006 – the largest fine to date being £610,000. The FSA has also used its jurisdiction under the Unfair Terms in Consumer Contract Regulations to obtain undertakings frominsurers requiring that they amend nil refund clauses in single premiumPPI policies.

The competition authorities are looking at PPI too. Their concerns relate to the broader questions of competition in the PPImarket andmay require fundamental changes in the sector. The Office of Fair Trading referred the PPImarket to the Competition Commission on 7 February 2007. All in all, 2007 is set to be a busy year for PPI providers and distributors alike.