The £5 Billion Insurance Protection Racket

Not since 1920’s Chicago when Al Capone ruled the roost has there been a protection scam of this magnitude. The old hoodlum would be green with envy at the sums involved with total revenue for 2006 estimated at £2.4 billion. The difference here is we are not talking about sharp suited gangsters extorting hard earned cash from the general public but financial institutions with household names that make up the very fabric of our daily lives. We are talking about PPI otherwise known as payment protection insurance. If you are still in the dark about what I am talking about, don’t worry, as there are thousands of people who have this insurance and don’t even know they have it. Unlike the strong arm tactics of the Chicago mobster, in many instances these policies are built in by the sales provider as a matter of course without the recipient even realising it ! So what is Payment Protection Insurance (PPI) ? PPI is basically there to cover you if you can’t make payments on your loan or credit card due to ill health, having an accident or losing your job. But that’s a good thing I can hear many of you saying. In principle, of course it is but the vast majority of these policies are overpriced, loaded with exclusions and in many instances missold. These policies do not pay out for example if you are self employed or have a pre-diagnosed medical condition. More importantly if a claim is successful in many instances the benefit is often little or more than the premiums paid. Who’s making the money? PPI is highly profitable and offers low risk income for providers. Of the estimated £2.4 billion generated from PPI in 2006 £1.4 billion was pure profit. Lenders sell PPI alongside credit cards loans and mortgages. According to the Competitions Commission they can generate an income of £1200 on a policy that only costs £20 to sell. These policies have virtually propped up the personal loan industry in recent years who would otherwise have been struggling to make a profit. Where’s your protection?. Just like the Federal Bureau of Investigation was set up to protect against the mobsters we have our own guardians in the shape of the Competitions Commission (CC), the Financial Services Authority (FSA) and the Office of Fair Trading (OFT). The Competitions Commission (CC) conducted a working paper in January and concluded that the loan industry was being subsidised by the profits that these policies generate. Commissions generated on PPI policies sold with loans and credit cards are between 50% and 80%! The CC is not due to make a final ruling until the summer but this report will add weight to claims made by consumer groups that the policies are an unjustifiable expense.

The selling of PPI was referred to the CC after a two year investigation by the Office of Fair Trading. If the Commission concludes that the price of policies is too high it could stop some lenders from offering PPI altogether. The Commission will have to consider the implication of its findings. It said the cost of PPI is not justifiable on the grounds that it reduced potential losses to the banks through bad debt. While several lenders said that PPI acted as a safeguard against impairment losses, on average customers who took out PPI incurred higher bad debts than those that did not. The Financial Services Authority has also been using its teeth of late and has been imposing huge fines for wrong doers. The HFC bank (a subsidiary of HSBC) was fined a record £1.085 million for failing to give PPI customers suitable advice. The FSA are now conducting their own investigation into whether the sale of PPI conforms to its own rules on treating customers fairly. To date the city watchdog has fined at least half a dozen companies with fines totalling in excess of £2 million. An independent probe by the OFT has exposed sales staff for telling borrowers the cover was compulsory or including it in loan quotes without even telling the borrower. Claim a refund If you believe that you have been missold PPI or discover that you have got it without realising, now is the time to stake your claim. As more people are becoming aware of this racket the Financial Ombudsman has seen a deluge of complaints. It received 1499 complaints about PPI in January alone which compares with1832 for the whole of the 2006/07 financial year. More importantly the Ombudsman reported that 80% of the PPI complaints are being upheld. This compares with 32% of insurance claims overall. Brad Martin, CEO of claims management company Claimline UK Limited believes this is just the tip of the iceberg. “This is due to follow a similar pattern to endowment misselling with firms refusing point blank to acknowledge the complaints and leaving it to the jurisdiction of the Ombudsman. The total PPI market is worth over £5 billion to the financial institutions and with the vast majority of these policies potentially being missold it’s clearly something they wouldn’t want to acknowledge! With the weight and the backing of the various complaints committees together with our own experience we are confident in achieving high success rates getting the PPI payments refunded to our clients” Just like Al Capone and the rest of the mob it looks like the great PPI scandal is about to meet its demise. For more information on the Payment Protection Insurance scandal and how to register your compensation claim contact Claimline UK at