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Hurrah! The Office of Fair Trading has finally decided that it's time to investigate that iniquitous of all insurance policies -- Payment Protection Insurance (PPI). Lenders will do their level best to sell you PPI whenever you take out a mortgage, personal loan or credit/store card. It's designed to cover the monthly repayments if you lose your job or can't work because of accident or ill health and it'll also pay off the debt if you drop dead. The trouble is lenders make a lot of money from selling PPI which is why there have been frequent accusations that policies have been heavily sold at vast expense to people who wouldn't be able to make a claim anyway. Indeed, last September Citizens Advice made a formal complaint to the Office of Fair Trading about the way PPI policies are sold describing it as a 'protection racket'. They've since been backed up by the Financial Services Authority who conducted a mystery shopping exercise last year and uncovered poor selling practices and a lack of proper compliance controls among half the firms they investigated. One of the OFT's concerns is that PPI claims ratios (claims as a percentage of premiums paid by consumers) are estimated to be 15-20%, which is low compared to other general insurance products. For example, claims ratios for motor insurance were 74% and household insurance 55% in 2003. I hope they'll also look at the refund of premiums for loans that are settled early. Consumers are usually required to pay the full premium up front and insurers use the excuse that as the amount they'd have to pay up is bigger at the start of the loan than at the end, they're entitled to hang on your premium the more you pay off the loan. For example, if you were to pay off an Egg loan three quarters of the way through the term, you would only get back 6% of your premium. The OFT expects to publish its report by the end of 2006 but in the meantime, if you've got a PPI policy then check the small print carefully to see if you'd be able to make a claim if anything went wrong. In particular pay attention to any age and health conditions in the terms of the policy and if you think you may have been mis-sold a policy, complain to the firm concerned and ask for a full refund.
