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The Actuary The magazine of the Institute & Faculty of Actuaries

Single premium PPI banned

Sales of single premium payment protection insurance (PPI) accompanying unsecured personal loans will be banned from October 2010, according to the FSA. The announcement, which has been sent as a letter to chief executives, follows the decision last month by a number of major banks to stop selling this particular version of PPI. Some of these firms, along with other market players, now offer, or plan to offer, regular premium PPI instead of a single premium product.

Despite giving over one year’s notice, the regulator has already called on firms to halt current sales of the product due to its concerns with compliance standards. PPI covers loan repayments if a policyholder becomes sick or unemployed for a fixed period only, usually one year. They are often sold alongside mortgages, credit cards and other loans. Under a single premium structure, the entire cost of insurance is incurred upfront which, in some instances, inflates the borrower’s initial repayments. The annual report of the Financial Ombudsman Service showed that complaints related to PPI in 2008-9 were almost three times the levels seen in the previous year. Of the cases resolved, 89% were found in favour of the policyholder.

Major lenders including Alliance & Leicester, Capital One, Liverpool Victoria, Egg and GE Capital, as well as a number of major retailers, have all been fined by the FSA for mis-selling PPI cover. The FSA has greatest concern about sales procedures such as not giving customers enough distinction between the products when calculating payments, and selling policies to customers who are not covered by the insurance, such as the self-employed, unemployed, retired or those with pre-existing conditions.

However, despite its concerns, the FSA acknowledges the relevance of the insurance in the current climate. FSA managing director of retail markets John Pain said: “We recognise the severity of the current economic climate and the financial problems many consumers are facing. Moreover, we believe that PPI can play an important and legitimate role to cover repayments on specific credit agreements for consumers facing job loss or other issues at this difficult time. However, our focus remains on how this product has been and continues to be sold, and whether consumers have been treated fairly during the sales process.”