Lenders continue to make huge profits out of PPI products

Payment Protection Insurance (PPI) products - which provide an income for people who become unable to work due to unemployment, accident or sickness – are probably the most profitable of all products for greedy lenders.

Certainly, the benefits of PPI policies have been undermined by the ongoing negative press about this area of the insurance sector. Following on the Citizens Advice Bureau’s super-complaint about the sector and the Financial Services Authority (FSA)’s fining of three companies so far for sloppy sales prices and mis-selling, the Office of Fair Trading (OFT) is now proposing to refer the PPI market to the Competition Commission for a full investigation.

PPI provides valuable financial protection should the policyholder become not able to work, but the cost of this product is so very often over-priced. It is estimated that the premiums collected from PPI policies are around £5 billion, but only around £1 billion will be returned to claimants as payouts. This means that there are a lot of hefty commissions left over.

It is clear that consumers are suffering, with some paying up to five times more than they need to for premiums. Others feel that they simply cannot afford to take out this kind of protection and are under constant worry as to what will happen if they become redundant or ill.

The majority of the design, pricing, and even the distribution of PPI policies is controlled by the lenders.

Lenders encourage their borrowers to buy their own PPI products using hard-sell techniques while they are making sales for loans, mortgages or credit cards. And, says Simon Burgess from independent provider BritishInsurance.com, it is at this point that borrowers surrender their chances of shopping around for PPI products independently, which could offer them cheaper premiums prices.

“Many consumers are not aware of the types of PPI products available, nor do they always fully understand what the products do. This means that when they come to take out some form of borrowing such as a mortgage or loan, they are a sitting duck for the lender. The lender does not tell them that they can shop around for cover, but, in many cases, pressurises them in to taking out one of their price-inflated PPI products.”

So, the moral of this is, if you are considering taking out some form of borrowing, do your research first as to the cost of PPI - it could literally save you thousands of pounds over the life of the loan.