COMPETITION
COMMISSION News Release (35/08) issued by COI News Distribution
Service. 21 November 2008
The Competition
Commission (CC) has today published for consultation its proposed
remedies designed to increase competition in the retail payment
protection insurance (PPI) market.
Retail PPI is a small part1 of the overall PPI market relating to
protection taken out on repayments for shopping through home
catalogues. Although part of the ongoing investigation into the
whole PPI market, the CC published its provisional findings on
retail PPI separately last month.
The report concluded that,
as with other types of PPI policy, retail PPI is highly profitable
for distributors and there is little competition between providers
on price and other factors, limited ability for customers to
search for alternatives or switch products and a considerable
point-of-sale advantage for the providers. At that time, the CC
also published a Notice of Possible Remedies for retail PPI,
inviting views on how best to remedy the problems identified. The
notice included most of the remedies consulted on for other types
of PPI policies.
Following discussions with providers and other interested
parties, the CC is now proposing a package of measures which it
considers will be practical and effective in increasing
competition in the market to the benefit of customers. These are
set out in full on the CC website at http://www.competition-commission.org.uk.
The proposed remedies for retail PPI closely match those
published last week for the rest of the PPI market, with two
exceptions: there is also an obligation to offer PPI separately
from merchandise cover, which is typically also offered to
catalogue shoppers; and there is no ban on single-premium
policies, as all retail PPI policies are covered by monthly premiums.
The package of measures includes:
* an obligation on distributors to offer PPI separately where PPI
and merchandise cover are both offered;
* a prohibition on the active sale of PPI by a distributor to a
customer within 14 days of the distributor selling credit to that
customer. This will address the point-of-sale advantage, and give
the customer more opportunity to compare products and providers,
in turn encouraging greater competition between providers. Whilst
the distributor cannot re-contact the customer for 14 days,
customers will be able proactively to contact the distributor and
purchase a policy 24 hours after the credit sale.
* a requirement on retail credit providers to provide a
'personal PPI quote', which will clearly state the cost
of the PPI policy individually and when added to the credit
product. If this is not given at the credit point of sale, the
credit provider must do so if they subsequently contact the
customer to offer PPI, and the prohibition period starts from the
date on which the personal PPI quote is provided to the customer;
* a requirement on all PPI providers to provide certain
information and messages in PPI advertisements (including the
price of their PPI, expressed in a common format of monthly cost
per £100 of monthly benefit, as well as monthly cost of PPI per
£100 outstanding balance, and that PPI is optional and available
from other providers);
* a requirement on all PPI providers to provide certain
information on PPI policies to the Financial Services Authority
(FSA), the OFT and to the public, and a recommendation to the FSA
that it uses this information to populate its PPI price comparison
tables; and
* a requirement on distributors to provide an annual statement
for PPI customers, including information similar to that provided
in the personal quote, to encourage customers to review their
policy annually and make it easier for customers to decide whether
to switch.
The CC would like to hear from all interested parties about the
document by 12 December 2008.
To submit evidence, please email PPI@cc.gsi.gov.uk or write
to:
The Inquiry Secretary
(PPI
investigation)
Competition Commission
Victoria
House
Southampton Row
LONDON
WC1B 4AD
Notes for editors
1. The CC is an independent public body, which carries out
investigations into mergers, markets and the regulated industries.
2. PPI covers repayments on credit products if the borrower is
unable to do so due to loss of earnings as a result of accident,
sickness, unemployment or (in many cases) death. PPI is sold to
cover a variety of financial products, but over 90 per cent of PPI
sold in the UK in 2006 was either personal loan PPI, credit card
PPI, mortgage PPI or second-charge mortgage PPI.
3. Enquiries should be directed to Rory Taylor on 020 7271 0242
or rory.taylor@cc.gsi.
gov.uk.
4. The members of the PPI inquiry group are Peter Davis (Group
Chairman and CC Deputy Chairman), John Baillie, Christopher
Bright, Professor John Cubbin and Richard Farrant.
5. The OFT referred the PPI market for investigation by the CC in
February, following its initial study into the sector in response
to a 'super-complaint' from Citizens Advice. Under the
Enterprise Act 2002, the OFT can make a market investigation
reference to the CC if it has reasonable grounds for suspecting
that competition is not working effectively in that market.
6. Following such a reference, the CC carries out a comprehensive
investigation, so that it can ultimately come to a final decision
about whether any features of the market prevent, restrict or
distort competition and, if so, what action might be taken to
remedy these.
7. Market investigation references are intended to focus upon the
function of a market as a whole rather than the conduct of a
single firm in a market. If the OFT has concerns about the conduct
of a single firm or firms that have engaged in anti-competitive
agreements, it will first consider whether those actions infringe
the Competition Act 1998.
1In 2007 the gross written premium
(GWP) paid by customers for retail PPI was £73 million. In 2006
the GWP for all other forms of PPI was £4.5 billion.