Despite an ongoing investigation by government watchdogs, lenders continue slyly to put up premiums for this swindling insurance.
If your business and all of its competitors were under investigation by a government watchdog, what would you, as the boss, do?
Personally, I'd keep my head down, stay firmly on the right side of the law, and avoid making any controversial decisions and strategies. Perhaps I'd even second-guess the regulator's findings and start taking positive steps to improve my position in the marketplace. One thing I wouldn't do is make things worse by rubbing salt into the wound. However, life under the microscope is obviously very different when you're a leading lender, because that's exactly what some have been doing. Allow me to explain...
Not many people know this, but the payment protection insurance (PPI) market is the third-largest general-insurance sector in the UK, after household and motor insurance. Indeed, I reckon that total premiums for 2007 will comfortably exceed £6 billion, so we Brits buy around £500m of PPI cover each month. That's big business.
Now for the bad news: PPI is a right royal rip-off. People buying this optional life, accident, sickness and unemployment insurance are being taken for a ride by greedy lenders arranging mortgages, personal loans and credit cards.
The massive over-charging and outright greed in this industry have got so bad that PPI providers are under investigation by the Competition Commission, as I reported in Time To Clean Up This Swindle. Nevertheless, although PPI suppliers are undergoing a two-year enquiry by the Commission, some clearly feel that they don't make quite enough profit. As a matter of fact, while some personal-loan providers have been reducing the premiums that they charge, others are raising their rates, as the following table reveals:
The cost of PPI for a £5,000 unsecured personal loan over three years
PPI premiums increased
Lender | PPI premium, June 2006 (£) | PPI premium, June 2007 (£) | Difference (£) | Increase (%) |
|---|---|---|---|---|
Direct Line (telephone) | 508.32 | 882.00 | 373.68 | 74 |
Lloyds TSB (direct) | 760.32 | 1,035.72 | 275.40 | 36 |
Alliance & Leicester | 760.68 | 986.04 | 225.36 | 30 |
Liverpool Victoria | 735.48 | 946.80 | 211.32 | 29 |
Liverpool Victoria (online) | 802.80 | 984.96 | 182.16 | 23 |
Source: Moneyfacts
So, hats off to the fools (note the small 'f') at Direct Line for raising the cost of its personal loan PPI by almost three-quarters (an eye-watering 74%). You are aware that you're being scrutinised by the Competition Commission, aren't you, chaps?
PPI premiums reduced
Lender | PPI premium, June 2006 (£) | PPI premium, June 2007 (£) | Difference (£) | Reduction (%) |
|---|---|---|---|---|
RAC Financial Services | 1,268.28 | 964.08 | 304.20 | 24 |
Norwich Union | 1,174.68 | 964.08 | 210.60 | 18 |
Cumberland BS, Dudley BS and Furness BS | 968.76 | 768.24 | 200.52 | 21 |
Source: Moneyfacts
Although these five lenders have reduced their PPI premiums, I'm not going to praise them, because their policies remain massively overpriced. Still, at least these PPI providers are taking a step in the right direction.
In summary, my advice to lenders and other suppliers of PPI is: when you're at the bottom of a deep hole, do stop digging. Raising your PPI premiums while under formal investigation adds insult to injury and risks rocking this particular boat even harder!
Finally, you can guess my next piece of advice: never, under any circumstances, buy PPI direct from a lender. Always shop around for stand-alone cover, which can cost a fifth (and sometimes a tenth) of the price of the policies in the above tables. Leading independent providers of PPI include Best Insurance, British Insurance, Paymentcare the Post Office, and SecurityFirst.
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