IF PAYMENT protection insurance (PPI) wasn't sold primarily by the UK's favourite beacons of fairness and integrity – its high street banks – it would be dismissed as a rip-off perpetrated by cowboys.
Because a rip-off is what it all too often is, and it didn't need the Competition Commission's report this week to confirm that.
PPI, sold alongside debt such as loans, mortgages and credit cards, is designed to cover repayments should the policy
holder be made redundant or be unable to work because of sickness or an accident.
The initial findings from the commission's investigation into the £4.4 billion-a-year sector found that customers are overcharged by more than £1.4bn a year for the cover. What's more, just 14 per cent of claims pay out, far lower than for any other form of insurance.
While standalone PPI policies offer better value and are appropriate for some customers, most are sold by banks alongside the debt they are designed to cover to customers for whom the policy is unsuitable.
For instance, thousands of policies have been taken out by people who would not be able to claim on them anyway, such as pensioners and the long-term sick.
Consumer groups lined up to condemn the product this week, with several calling for this type of insurance to be banned.
But while serious action is needed to prevent more consumers – who are merely trying to be responsible– from being ripped off, banning the product is perhaps excessive.
The problems with it are clear enough and so, therefore, are the solutions. For instance, they should no longer be sold on a single premium basis. This means that a lump sum covering the cost of the insurance is added to the amount you have borrowed, so you pay interest on both the premium and the loan.
Similarly, mis-selling has been widespread, partly because customers are not given the full details of what they are buying, or informed of the alternatives available.
In most cases, for example, income protection is not only more suitable, but cheaper and more comprehensive.
Arguably, if people knew the full details of PPI and were able to compare it with the other types of cover they could buy, very few would opt for PPI.
Preventing banks and lenders from selling PPI at the point of sale of the associated product – as the Competition Commission is considering – would also make the market far more competitive.
Given that some consumer bodies have been calling for the reform of PPI for nearly a decade, the Competition Commission's report surprised no one.
But until wide-ranging changes are made to the product, the great rip-off will continue.
AT THE launch of the first Council of Mortgage Lenders report specifically covering the Scottish housing market, it was remarked that if the event had been held 18 months ago, no-one would have turned up.
Instead the publication of the new figures, which confirmed the relative health of the housing market in Scotland compared with the rest of the UK, attracted plenty of interest.
But while no-one's doing a lap of honour because Scotland has apparently escaped the worst of it, the response from some quarters carried a hint of complacency.
It's a bit early for that. The supply of mortgages has dried up alarmingly over the past year and there's little sign that this will change during 2008.
With surveyors reporting that more house sale chains are collapsing as a result, the next few reports from the CML covering Scotland's home market could make for increasingly sober reading.
The full article contains 612 words and appears in The Scotsman newspaper.
