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FSA/PN/104/2006
19 October 2006

Some firms selling payment protection insurance (PPI) are still failing to treat their customers fairly, an FSA review has concluded.

While a number of firms have improved their sales standards over the past year, visits to 40 firms show there are still three key areas of widespread concern. These can result in customers being unable to make an informed decision about taking out PPI cover.

Key findings

• Many firms are still not giving customers clear information during the sales conversation. It is not being made clear that PPI is optional and customers are not getting full information about how much the insurance will cost.
• Customers are still not being made fully aware that there may be parts of the policy under which they cannot claim. Furthermore, some firms are still failing to establish that the PPI policies they recommend are suitable because they are not collecting sufficient information from the customer – for example, about any existing cover they possess.
• Where customers are sold single premium policies, this is not always done with the best interests of the customer in mind – for example, where a choice between a regular or single premium is available, the sales conversation may be biased towards the single premium policy when the customer's circumstances suggest this is not the most suitable option.

FSA Managing Director of Retail Markets Clive Briault said:

"As we have made clear before, when sold properly PPI can provide valuable protection against changes in personal circumstances. But despite some improvements in standards, major weaknesses remain which go to the heart of the culture surrounding PPI sales.

"The bottom line is that customers should come away from the sale having been given the best possible chance of understanding that PPI is optional, what the policy will and will not cover and how much it costs. On the strength of our findings, the industry has further to go to demonstrate that customers really are being treated fairly in this market.

"There are also important messages here for consumers. They should be prepared to ask straightforward questions of sales staff when PPI is mentioned and we are publishing some top tips on this to help them to identify whether PPI is right for them.”

The study also identified particularly poor standards among some firms, such as motor dealers and retailers, for whom the sale of PPI is a minor activity relative to their main business.

The FSA has this year secured undertakings from firms and the agreement of trade associations to make the practice surrounding refunds on cancelled single premium PPI policies fairer and more transparent to customers.

The FSA has liaised closely with the OFT in its work on the market study and will continue to work closely with the competition authorities, recognising the more fundamental problems in the PPI market that lead to consumers getting a poor deal.

The FSA will follow-up urgent remedial programmes with a number of firms to improve their sales standards and will continue to pursue formal disciplinary action against firms who fall well below the required standards. The FSA will conduct further work next year to ensure that senior management are addressing the areas of concern and embedding the behaviours and standards expected.

The FSA is considering, as part of the existing wider review of the effectiveness of the regulatory regime for general insurance products, whether new rules are required in the area of PPI sales. It plans to publish a report on this wider review in Q1 2007 with any resulting changes coming into effect in Q4 2007.

The FSA has recognised the work underway by the industry trade associations (for example; the provision of guidance on improved sales procedures, and training; improved consumer information; and improved quality of after-sale disclosure) and that it will take time for the benefits to be realised. It will continue to work with trade associations to help improve overall standards, and will take into account the effectiveness of that work when it considers whether new rules are justified.

Top tips for consumers

The top tips published today include:

• PPI is almost always optional - you should not be refused credit if you decide not to buy it. Consider your own personal financial circumstances, including any other insurance cover or savings you already have, when deciding whether you need it;
• If you do, make sure you are clear about what you will be covered for and what won't be covered, for example any exclusions relating to your medical history;
• Ask before buying if you are uncertain;
• Remember you don't have to take out PPI from the same place you get your loan from - shop around to compare benefits and prices;
• Check what you will get back if you cancel the policy or repay the loan early.

Notes for editors

1. The sale of payment protection insurance – results of follow-up thematic work is a report following up the work the FSA undertook during 2005 and published in November 2005 The sale of payment protection insurance - results of thematic work. The FSA also issued in November 2005 a Dear CEO letter to medium and large firms and a fact sheet for small firms.
2. The Phase 2 work was based on supervision visits to 40 firms selling PPI conducted between April and June this year. The sample gave a good spread of firms across a wide range of sectors – banks, mortgage brokers, credit brokers, car dealers and retailers and also had a good mix of penetration rates and a good mix of firms that sold single premium and regular premium PPI and sales on an advised and non-advised basis. Also included were some firms that sell PPI on a stand-alone basis. However this phase of work excluded firms that sold regular premium PPI in the prime mortgage sector because the Phase 1 work found relatively few compliance failings among firms in this sector.
3. The ICOB effectiveness review is considering, amongst other things, whether the rules provide sufficient consumer protection for protection products, including PPI, and whether there is a case for deregulation in the case of simpler general insurance products such as household and motor insurance. More information can be found in Press Notice 116/2005.
4. The FSA's consumer pages on Payment Protection Insurance can be accessed from the FSA website.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.