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 INSURANCE
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                                                                                                                                        Financial
                                                                                                                                        Ombudsman
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        The Inquiry Secretary (PPI market Inquiry)
        Competition Commission
        Competition House
        Victoria House
        Southampton Row
        London
        WCIB4AD

                                                                                        Date: 19 November 2007
        Dear Sirs,

        PPI Market Investigation - Emerging Thinking
        Thank you for the opportunity to respond to your emerging thinking paper.

        Millennium Credentials

       Millennium Insurance is an independent provider of stand alone PPI which seem to a
       proposition encouraged by both FSA and CC to improve the competitive position for stand
       alone PPI, delivering quality cover at a reasonable price.

       We have a 5* Defaqto rated stand alone PPI policy with consumer choice & flexibility.

       The writers own background encompasses 26 years in general insurance, with 13 years as the
       insurance product manager at Britannia Building Society, and 2 years at Egg pic the internet
       bank, with responsibility for creditor product design, build and administration.

       Part A -
 Competition             Commission Emerging Thinking issues

       The responses listed below are on specific issues linked back to the relevant paragraph
       references in the report.

       It would appear the Commission's ongoing focus is on the retail distribution side of
       (unsecured loan) PPI as sold mainly via 5 large "bankassurers" controlling some 80% of the
       s~esoftlllsPPIvariant.

       The influence of large distributor power, product design and commission earnings appear to
       be the real issues of concern here, yet it appears the data to support these lines of enquiry is
       not available.

       It is disappointing that, to date, no firm conclusions have been reached and no remedies can
       be considered yet. This is despite many failings having been made so public by FSA
       concerning the distribution and selling standards of LPPI, which seems to indicate the
       distribution oflinked PPI in the unsecured personal loan market, is fundamentally flawed.

       Yet the payment protection product suffering the most in terms of sales reducing is MPPI.

       If the final report cannot be published until December 2008, would it be possible to eliminate
       Mortgage PPI from further enquiry with immediate effect?

Personal Lines         Commercial              Pure Protection        Accounts                Business Partner Support             Contact Centre
T: 01952 282000        T: 01952 282004         T: 01952 282005        T: 01952 282006         T: 01952 282007                      T: 01952 282622
F: 01952 282001        F: 01952 282002         F: 01952 282003        F: 01952 282003         F: 01952 282003                      F: 01952 282619
Pleae note that calls may be monitored or recorded for compliance and/or training purposes.
Millennium Insurance Brokers Limited
Millennium House, New Street, Newport, Shropshire TFlO 7 AX www.millenniuminsurance.co.uk               Registered in England. Reg No. 2103848
Authorised and Regulated by The financial Services Authority; Ref 308310
What is PPI ? - a short history ofwhv PPI nroducts have evolved as they are
35 -41    The multitude of various PPI product variants is a result of 25 years development of the
          retail credit market in the UK and consumers 'jam jar" approach to insurance &
          personal protection.                                                                         !
                                                                                                       !
          Holistic reviews of one's financial indebtedness and protection needed does not take
          place in the UK.                                                                             I
                                                                                                       <



          Due to high "indemnity" commission rates available for "investment" products and the
          impact of the 1986 Financial Services Act, IFA sales charmels abandoned pure life
          protection products. ( we subsequently had the endowment and then pensions crises !)

          Throughout the 80's and 90's (reigns of ABI Guidelines & the GISC) the area of one's
          personal protection was referred to as "unregulated" spawning a number of Term Life
          "networks" chasing the large indemnity commissions on offer.

          Protection was left as a bit part player and was sold largely by unregulated sellers and
          those who dropped out of being regulated for investment advice.

          General Insurance brokers typically avoided selling term life, as they had other
          concerns to fight off direct writers in the personal lines markets.

          PPI or Creditor products were originally designed to protect the lending books of
          Banks and Building Societies. PPI retail cost was not based on individual risk criteria.

          Indeed those insurers who tried to maintain individual underwriting in the early years
          were criticised as delaying or constraining the lending process and many of these
          insurers stopped underwriting creditor.

          Speedier underwriting & acceptance came to the fore when more enlightened insurers
          would accept PPI (only via the lending institute itself) when taking a new loan and the
          lender undertaking a full credit score. i.e the underwriting of the loan itself drove the
          eligibility for PPI.

          The IT systems adapted to administer PPI was that already used by the lender for its
          loan / mortgage book.

          Systems could not employ any risk rating and its only function was to collect a
          premium and pay to insurers per first named on the loan.

          This is why there is not joint cover, no age pricing, no choice of flexible cover options,
          and most importantly why single premiums, which provided cover only for the period
          of the loan and for the loan repayments, with no need for any separate premium
          collection processes were and still are used.

          Early PPI products also only covered "Redundancy", as the concept of contract
          workers and short term employees enjoying the same employment rights as full time
          employees was unheard of.

          Early products also offered 24 months AS to provide self employed persons with a
          double benefits for disability as they could not claim for redundancy.
Over the years the underwriting exclusions and eligibility criteria for PPI has been
largely driven by:
                                                                                            l!




    I.    the underwriters desire to avoid anti-selection ie pre existing medical
         conditions, back injuries and the emergence of "stress" in the work place
         growmg

    2. concerns over fraudulent or exaggerated claims

    3. the desire of lenders to make PPI available to everyone if eligible to take out a
       loan,

    4. the growth of distributor power over 20 years

    5. The changing employment legislation and definitions of "work"

    6. The ppi underwriters changing underwriting criteria to define "involuntary
       unemployment" rather than redundancy, and cover contract workers, self
       employed persons and those working abroad etc

    7. The mid 1990's work by ABI and CML to define a benchmark* MPPI wording
       to meet the Government's Sustainable Home Ownership targets.

    8. Other distributors with access to volume consumers developing PPI variants to
         "fit" their distribution methods and pas systems, creating the growth of
         variants such as credit card PPI, motor finance PPI, store card ppi.

See appendix 1 "baseline mppi criteria", with some highlighted        areas, designed to
protect consumers.

There is a case for a similar loan PPI benchmark      product with defined consistent
terminology for all distributors                                                            ·1


PPI products are essentially all the same, covering AS U and Life.

Their construction and pricing is defined by IT & pas systems used ..

This is why most newer and stand alone PPI products typically offer wider cover than
the older linked PPI products sold by the lenders.

This baseline * MPPI wording, definitions and industry response should be recognised
as reasons why the MPPI product and sales methods is very different to that ofPPI and
why MPPI sold by mortgage intermediaries should be removed from further
investigations as soon as possible.

Lenders still struggle today to offer stand alone PPI, due to IT constraints, competency
of call centre staff. Many will now seek to outsource stand alone PPI sales to TPA's.

Claims were (still are) paid back to the distributor, not the consumer direct and it was
(is) easier to manage and more practical( for the distributor) to ensure the payments are
met.



                                                                                             I
                                                                                             I
     Legacy IT systems are also the root cause of the refunds system being Rule of 78ths.

     The driving force has been the need of the distributor to have its loan debts repaid or
     paid off in the event of the consumer's death.

     Underwriters saw and encouraged distributors with direct access large customer
     databases to develop own branded PPI products linked to their own POS systems .
                                                                .
                                                                '




     In the early 1980 's distributors customers could only buy PPI at the time of a new
     mortgage or loan with that specific lender.

     This evolved over time to allow lenders with good claims experiences to sell PPI to
     existing mortgage customer of that lender to cover their existing lending books, but
     usually with longer initial exclusion periods to reduce anti-selection)

     As systems could not produce personal schedules ( as broker / insurer systems do for
     motor) the wording itself had to contain all the variants and exclusions meaning
     complex wordings and hidden definitions.

     Consumer power now allows consumers to buy PPI anywhere, but the main
     underwriting criteria is still how to avoid anti selection, with Internet applications for
     Unemployment cover only causing the most concern.

     A consumer actively seeking a new loan, mortgage credit card is still statistically a
     better risk than someone seeking PPI on a stand alone basis.

     There is a natural link for PPI to be sold at the POS of a credit product. The
     consequences of breaking this link would be increased prices and more detailed
     underwriting before acceptance or lower cover and extended exclusions periods.

38   The reason why it is not "usual" to have Life cover in MPPI is that comparison tables
     and aggregator sites for PPI will not display such unique products until there is a
     method of commoditising a number of providers PPI products to show the cheapest
     premium.

     Product innovation or at least the marketing of it, is stifled or constrained by the likes
     of moneysupermarket.com as they are "TIIE PRICE" comparison website.

     Defaqto is a business tool intermediaries must pay to use, and supplier must purchase
     licenses to promote. Consumers do not understand or use such tools.

     IT systems such as Mortgage Brain & Trigold dominate the POS for mortgages.
     Ifproviders don't meet these suppliers demands for commoditisation, and pay their IT
     build costs, and / or pay them commission over riders the providers PPI products will
     not appear on these systems.

     We can offer a product called Multi Guardian. Term Life cover can be added to either
     ASU, or AS or U only and the SI can be flexible based on 12,24,36, 48 or 60 times the
     monthly insured value up to £100,000. The difficultly is in getting end consumers to
     know about it, and persuading intermediaries to sell it, as they see it a competitor to
     them selling separate Term Life, where they can eam up to 200% commission on
     indemnity.

     This is an FSA TCF issue, not one of competition.
          Substitutable products
50 -56    Substitutable products for PPI to cover "indebtedness" do not exist.

          Stand alone MPPI is the only viable product that can also be extended as a matter of
          course to cover "other household bills" and so (if sold correctly) can become a"
          committed payments protection" solution for a household.

          The failure ( if there is one )is not the PPI product itself, but the failure of the
          distributors who are primarily concerned in covering their own mortgage payments, not
          the customers other committed payments and indebtedness.

          It is incorrect to describe IP ( or PHI) as a substitute, as it does not provide
          Unemployment cover.

          PHI is also mainly designed by life insurers and offered for sale under COB rules,
          meaning many GI intermediaries working under ICOB permission, cannot sell them.

          The Underwriting of PHI is more complex with various definitions of cover based on
          various gross or taxable income percentages and definitions of "own" "all" or similar
          occupations, before a claim is met.

          We would seek situations and remedies where these products can be seen and
          promoted positively by the industry as "complementary" to one another ie an MPPI for
          12 months back to day one claims benefits supported by a 52 week deferred PHI which
          picks up any longer term disability, rather that constantly being described as
          substitutes.
56
          We very much welcome the raising of public awareness of the low State benefits, and
          we would encourage some interaction where State benefits such a ISMI were made
          complementary to private MPPI protection. ie State benefits paid after 12 months not 9
          backed by a proactive Government promotion of and incentives for private protection (
          ie removal ofIPT on MPPI)
          Commissions
67,82
and 137   We suggest it is perhaps wrong to concentrate on "commissions"              and attempt to
to 140    analyse this in terms of if x or y % , or if it is excessive or not.

190       Perhaps this is the wrong focus and one reason why the Competition Commission is
          not progressing as fast as it would wish with its conclusions in this area.

          Commission "rates" are not a factor of the LPPI market for distributors in the same
          way it is for say motor or household insurance sold by intermediaries.

          Distributors   do not negotiate commission levels when developing own brand PPI
          products.

          Underwriters do not offer PPI at retail rates and offer distributors "commission" as they
          do it motor and household.

          It is therefore wrong to make such comparisons.

          It may even be possible that some distributors do not even work out the top line
          commission as a set % value. It is simply the result, not the starting point
Underwriters set their required net risk rates for PPI based on known claims
experience, future claims predictions and market forces, and then discuss the services
the distributor will take on either in house, or through a third party administrator, and
which services the underwriter will deliver as part of the net rate or for a fee.

These will include:

    •   Claims
    •   Marketing
    •   Premium Collection
    •   Compliance
    •   Training
    •   IT systems

These is turn may be out sourced, or paid for on a retainer basis with other services
brought in after competitive tender processes by other parts of the distributor
organisation

This may also explain why the incumbent ppi underwriter seems to be better placed to
retain existing contracts with distributors than gaining new accounts

In truth, the actual "commission rate" or retained profit figure per sale may not even be
known, which may indicate why the data being sought is not readily available by some
distributors.

Net rates provided by insurers will be sensitive commercial information that they
would not wish their competitors to know and will not be forthcoming if requested

Distributors will know the retail market rates they can sustain for PPI based on
competitor peer research on their main competitor's retail PPI rates.

The CC has defined the PPI market as "a series of individual monopolies that each
distributor has over its own customers at the POS" which means PPI prices are not
sensitive for their consumers. We consider this as a core issue.

If the competitive negotiations with existing or new potential suppliers can be
leveraged to reduce the underwriters risk rate, or the pricing of other external services
can be reduced, the result is an increased retained margin for the distributor, created
though being more competitive, or by reducing costs

This is not the same as saying the distributor is getting a higher commission from a
insurer, they have just been more efficient in delivering the product. This normal
business practice.

The difference is the PPI distributors do not then reduce individual retail PPI rates for
every cost saving made and pass this onto the consumer. It is for the Competition
Commission to decide if this is anti competitive, or if its more appropriate to fall under
FSA's remit ofTCF and Managing Conflicts with consumers.

From the Distributors perspective, it is in business to make a profit for its shareholders.
If it carmot make a profit from PPI , it will cease to sell protection insurance and fmd
alternative income generation services.
                                                                                                   1
         Mutual organisations such as Building Societies, do offer cash backs or mutuality
         bonuses to its customer buying PPI (and other GI products) from its retained profits.

         This is a mainstay USP for mutuality driven brands such as Britannia Building Society.

         Focusing on reducing retail prices by the fixing of "commission" percentages will have
         major impacts on distributor incomes, employment levels, not to mention a reduction
         in insurance premium tax, and is perhaps the wrong focus.

         The ideal situation for any distributor is stable consumer prices to maximise retention
         of existing policyholders.

         The customer benefits in turn through continuation of protection without a change of
         price and/or cover as will occur say in motor insurance every year where churning is a
         feature.

         Changing PPI prices or terms of cover under PPI means an obligation under ABI/CML
         rules in the MPPI baseline wording to communicate within 30 days prior to all
         policyholders. This would be expensive for large distributors with large PPI loan
         books. It may also explain why these institutions are slow to implement changes, or
         why single premium products are favoured.

         For single premium policies, existing loan books can be allowed to run off naturally
         with new wordings and rates used for new customers

         When IPT changed from 2.5% to 4%, and then to 5 % , most PPI distributors absorbed
         those costs.

         Retail process remained constant, whilst distribution costs increased and retained
         profits per case reduced. This is balanced commercially with changing the terms of a
         policy and communicating to policyholders.

         The attraction of single premiums is the contact ( and price) cannot be changed and
         the policyholder enjoys continuity of cover.

         Morteaze Payment Protection MPPI
68       There is a case to suggest that MPPI, designed and managed to ABI / CML baseline
         conditions, (as sold via intermediaries) should now be excluded from the CC inquiry,
         to allow this market to re-build consumer and intermediary confidence in what is
         described by FSA as a valuable protection product.

         The product, the way it is priced and sold is very different to PPI sold as a linked
         product as part of an unsecured loan. (See above -
 ABII CML baseline specification)

         The bad PR being associated with all PPI products is unfairly diminishing the value of
         MPPI . One could argue the CC Inquiry itself, plus the ongoing FSA investigations are
         having a more detrimental effect on MPPI, and stand alone sales, that on what would
         appear to be the real problem, unsecured loan PPI sold on a non advised basis linked
         to the credit product
         Intermediaries selling one form of PP -
 stand alone MPPI
69 -71   We generally agree with these comments, but feel there may still an issue of some
         anti-competition here due to the influence of aggregators such as Towergate via the
         brand Payment Shield.
                                                                                               1
     The "near monopoly" situation does perhaps prevent and can sometimes distort free
     competition in the independent mortgage intermediary market, mostly driven by
     practices considered by some to be unsustainable, or that only those with deep pockets
     such as Payment Shield can offer ie

         •   "Free" cover periods (yet prices after "free" period are more expensive that if
             the free cover had not been offered- so they are not free)
         •   Paying commission on an indemnity basis to intermediaries up front before the
             policyholder has actually started to pay any premiums at all ( We would
             question where such funds are coming from ? profits, insurer, client monies)

     Or, propositions are offered such as

         •   "Flexible pricing structures as each product has a choice of prices. The
             commission you receive being dependent on the rates you (the intermediary)
             wishes to charge" (Assurant)

     Could this not breach Treating Customers Fairly, when intermediaries can decide its
     own retail rates to generate commissions they want?
72   Networks can and do distort the independent PPI distribution market too as they are
     trying the become the controlling distributor in the intermediary market using the same
     tactics the lender distributors have exploited for years

     Mortgage broker /IFA networks can influence the distribution of stand alone MPPI to "
     preferred" suppliers based on practices such as:

         •   offering of highest commissions in the market, pushing up % to 32.5%
         •   marketing to intermediaries based on income they can make, not the product
             suitability for their customers
         •   over rider commission to networks themselves
         •   IT build or by paying for integration into POS systems
         •   prizes such as cars or holidays based on increased sales volumes

     Many would seem to some as in breach of at least some of the FSA's TCF or
     Managing Conflicts principles with the FSA expecting to see appropriate controls in
     place, but being unable to effectively police these.

     We do not believe the criteria set to participate on such network ppi panels whilst
     purporting to offer "whole of market" availability, should in reality be decided by who
     pays the most commission or those offering prizes or who will pay for advertising in
     the networks magazine or newsletters.

     I would question the use of the term "specialists" for some intermediary networks
     regarding "survey the market" if this is intended to be for the benefit of quality or
     suitable products for customer. The driving force appears mainly to be to maximise
     income for the intermediary or network itself.

     Regarding the issue of contractual ties, a Principal Network will have a TOBA with
     each PPI provider it appoints to it's panel, and individual brokers will have separate
     TOBA with each firm, or be party to the networks group TOBA if an appointed
     representative.
         There may be informal agreements to promote certain products or providers due to
         commission over riders and other incentives. (see attached "up to 32.5% commission
         promotion)

         There are many issues to contend with here where provider / intermediary / network
         relationships subsequently break down, mostly as to whom continues to receive"
         passive" commission income for historical sales and customer ownership
         Stand alone PPI
75 and   The area of stand alone PPI is of vital importance to us, and one we see as growing in a
78       competitive market.

         The danger is that the current investigations by CC and FSA have themselves caused
         this market to contract, through acquisitions or due to withdrawal of products

         I D&D HomeCare and CentrePoint have now become part of Assurant Solutions
         2 BIBA withdrew its own PPI scheme in 2007
         3 British Instance is reportedly up for sale
         4 Payment Shield is now part of Towergate and the PPI underwriter is now Norwich
         Union (Aviva) adding to the PPI market share of this underwriter.

         Intermediaries & IFA are starting to abandon their attempts to sell PPI as the adverse
         PR takes it toll, and they seek alternative income streams from non regulated activities.

         Marketin2
84&      Competition (or more accurately) consumer promotion by distributors is centred on the
110      credit product, not the PPI.

         Yes, there is lack ofPPI advertising, as it's a complex subject often with negative
         connotations. Loss of job, illness, etc

         In the writers experience, Marketing Departments in large Distributors want simple"
         good news" messages. ie lowest cost: price match guarantee etc

         Insurance and particularly PPI does not lend itself to "good news".

         The thought of not being able to pay the loan, being ill, or made redundant are not part
         of a consumers buying habit or focus when seeking loan and credit cards.

         Many distributors who have tried to market ppi based on actual facts ( death, loss of
         job etc) are criticised by regulators for "scare mongering"

         As one Sales Director was known to say to all new recruits (in a bank call centre)

         "You are not here to sell loans, people need money, our advertising will get the calls
         coming in. Your job is to sell PPI"

         Other Gl is marketed solely on cheapest price as it has become more commoditised.

         The Post Office tried to use the FSA "PPI scandal" as a sales tactic by attempting to
         position itself and its own PPI above all criticism, yet "small print" showed no advice
         could be given, and consumers were being passed to a call centre run by the same PPI
         insurer backing many lenders LPPI schemes. ( but do consumer notice ?)
         Stand alone provider tend to advertise to intermediaries with promise of higher
         commission or prizes. ( see attached "up to 32.5% commission" )
         Advised / Non Advised sales
85,86,   We believe this is the real issue and where the best remedies may lie.
87
         If a loan, mortgage of credit card is being sold to the customer and advice on the credit
         product has been given, then PPI MUST by definition be on an advised basis.

         We contend that the majority of problems are caused by so called "non advised" PPI
         sales. Internet PPI purchases tend to be on cheapest price, which may be a bad choice.

         Consumers do not understand APR's. Its the final total monthly cost they buy on.

         Adding notes to an already massive paper legal document showing the cost ofPPI over
         the term is not helpful, as no one reads it and no one understands it if they do.

         Single premium Loan Linked PPI
93       Single premium PPI accompanies unsecured loans, motor finance mainly due to IT
         systems limitations and the desire that the PPI simply pays back the lender.

         Instead of "single" I would prefer to se the term "Fixed" cost PPI for the term of the
         specific loan. Distributors need to make it clear their PPI policy is being sold purely to
         allow their recommended insures to pay them back, not help the consumer pay any
         other bills.

         Sinale v Monthly premiums
95       Whilst monthly PPI products seems to gain regulators approval more than PPI, we
         would urge acknowledgement of a few facts:

            0
                The actual PPI protection is the same in both products

            0
                In monthly PPI, the insurers can change rates and reduce cover terms more
                often

            0
                If a customer cancels a DD (after one representation) the DD is cancelled and
                cover can be terminated,

            0
                Single premiums cannot be cancelled by the insurer.

            0
                Single premium products can be altered if personal circumstances change, it is
                IT systems than prevent it in practice.

            0
                The lender is certain the cover will last for the term of the loan.

            0
                The ONLY TWO problems with single premium PPI is the cost has been
                hidden in the loan and its generally more expensive than its monthly paid
                alternative
96        Some people do not want another separate DD being taken for added insurance. As
          long a people are advised that premiums do attract interest this should not be made to
          sound as a " ripping the customer off' scenario.

          No one seems to be concerned about the other initial costs that can be loaded onto new
          mortgages such as solicitors / estate agent! valuation fees or the lenders own loan fees.

          These also attract interest over the lifetime of the mortgage / loan, yet it is ONL y the
          insurance costs which have to be declared, and made to look expensive.

          Customers do not add up the monthly costs x 36 or 60 to see the cost of monthly
          insurance. Systems carmot do this direct comparison and call centre staff are not always
          competent or willing to do it manually.

          There needs to be a consistent approach, and consumers made aware of the issues when
          adding costs into a loan or mortgage, not just for one specific insurance, as part of the
          overall" advice" being offered.

97        We have always lobbied for insurance to be refunded on a pro rata basis.
Refunds
          Constraints have been lenders in house IT systems.

          We have always offered a pro rata refund for all our PPI products
          The Price of PPI
101-105   Prices have been discussed earlier. We believe there is little hard imperial evidence
          distributors can make other than to point to marketing strategy and perhaps history

          Our submission would be that the net risk price for PPI from underwriters is fairly
          static across most insurers.

          Insurers underwriting concerns change from disability, redundancy and anti selection,
          needing a spread of risks across ages, sex, occupations and geographical areas.

          The better the spread, the more stable and lower the risk rate over time.

          UK wider distributors have a better risk profile than that of a smaller regional lender
          who may have a concentration in some risk areas

          Distributors will review costs of distribution (mainly IT and human competency costs)
          or will outsource and consider its rivals PPI retail pricing, attempting to just undercut it
          be a few pence, or be about the same.

          Established lenders having set their ppi price, and built it into their lending systems
          will wish to keep it stable over time. Even if events such as IPT changes, it will seek to
          absorb and leave retail prices unchanged unless it has to.

          Single premiums mean lower costs of administration, premium collection, debt
          management and compliance with the likes ofBACS.

          Distributors will constantly ask insurers to add USP elements such as back to work,
          hospitalisation or carer cover to existing contacts ( without raising prices) to allow new
          marketing initiatives.
      The insurers tend to comply rather that lose the business of a large distributor.

      The result is    LPPI prices are based at the higher end of the perceived competitive scale
      of premiums       with variations in quality and extent of cover based on the ongoing         I
      negotiations     between insurer and distributor, and who within the distributor has
      responsibility    for General Insurance product design and costing.                           I
      The benefit of this is stable cover over time, and should the UK economy turn for the
      worse, these products would survive and continue without change (probably       at the
                                                                                                    I
                                                                                                    I


      same prices too) whereas stand alone products may disappear or the prices increase as
      insurers seek to alter exposure or exit the market.

      The downside is higher than average prices and less need to keep checking competitive
      positions.
107   Consumers do not "look around" for PPI, and those that do tend to be the ones most at
      risk or those who initially rejected the lenders PPI.

      Should they find (after completion) they may have a need for PPI, when of course its
      too late !!,

      The reasons for now needing PPI could be defined as a pre existing, or a known event
      that is now of course not insurable.( uuless the client is prepared to not disclose
      something to get cover, and then complain when and if found out)
      POS advantaae
III   We would suggest altering "important" to "vital" for many reasons which benefit both
      insurer and distributor, and if are honest the consumer.

      Even if a consumer has paid slightly more for a linked PPI, its probably better than not
      having any cover at all if the worst should happen.

      The cheapest stand alone PPI is of no use, if it doesn't payout when expected.
      i.e there is a 90 day excess rather than back to day one basis of claim
112   There is an implication that PPI is mandatory, or at least distributors do not discourage
      this consumer perception, but it's no different to that used by lenders selling their own
      Buildings insurance schemes, or by car sales distributors selling warranty, gap and mot
      and tyre insurance, or travel agents selling travel insurance
ISS   There is little informed research by consumers on PPI. The product is not understood.

      If a claim is made the insurer often pays the benefits direct to the lender, the client
      never "sees" or receives anything tangible

      What is of concern is the recent growth in marketing of a "compensation culture" for
      alleged PPI mis-selling and consumer perception of ppi being swayed in a negative
      way, fuelled by the current PPI enquiries, and actions of the often ill informed Press

      The Internet
156   Internet users are using comparisons web sites to compare PPI in the same way they do
      for motor and household ie the cheapest price.

      This is leading them to the purchase of the wrong ppi product, or it will lead to the
      design of future PPI products based on cheapest price to achieve higher ranking on the
      comparisons sites. i.e the recent growth of age related PPI products, so the marketeers
      can say" ...... from £ xxx % (meaning the lowest price at tile youngest age)
           Switching
168, 172   Switching not a feature in PPJ, indeed switching could be deemed detrimental to
           consumers existing protection, if for example, a new medical condition presented itself
           after the first PPI was purchased.                                                          I





           Subsequent insurers would treat this a pre existing condition and exclude cover.            I
           Advise should be sought before someone switches PPI

           The advantage of stand alone PPI is of course, its portability. It can move with the        I
           client.

           Consumers still see PPJ as linked to that brand or distributor
170        Stand alone PPI is not a feature of large distributors, due to pas systems constraints
           and competency of staff for stand alone GI sales. There are a few lenders who will
           utilise a call centre capabilities of the insurers if offered to improve sale penetration
175        PPJ is series of individual markets such that each distributor has a monopoly over
           its own customers at the POS
175        This is 1HE most telling paragraph of the report and is probably the key statement to
           the sales of ppi with unsecured personal loans and credit cards.

           If people use a brand they trust for loans or for the spending power in the wallet, it
           follows they trust them with the ppi as well.

           One could suggest that a consumer would see a natural link between loan and ppi
           cover, and make the assumption that advice had been given for both, therefore the ppi
           must be OK as its got the lenders brand on it, and if the ability to repay does go all
           wrong the distributor handles the ppi anyway

           Finding separate ppi is difficult, time consuming and stand alone brand names are not
           so well known as the distributors.

           The CC remit must be to consider if this anti competitive, or if it does distort, prevent
           or restrict competition.

           What alternative protection would a consumer purchase if the practice were banned ?
           The answer is probably nothing, meaning less protected consumers.
176        Consumers will not buy PPI separately in any significant volumes. PPI is not as price
           sensitive as motor, unless regulation demands the distributors have to issue 2 quotes
           each time and tell all consumers they can seek their own stand alone PPI, directing
           them to the FSA PPI comparative tables.

           If consumers switch PPI after buying credit, again an independent adviser would have
           to consider the effect of longer exclusion periods and medical conditions that may be
           covered by any existing PPI, but which would now possibly be excluded.
           This would mean "non advised" sales cannot exist for PPI
Part B : Summary

We consider the key observation in the report to be paragraph 175.

"The PPI market is "a series of individual markets such that each distributor has a
monopoly over its own customers at the POS".

Brand Image
Well known distributor(s) have developed their brand images over time by delivering quality
services, and will design their own brand PPI products that generally protect their own
customer base, but ultimately it is to protect their own lending portfolio.

POS advantage.
If PPI were not sold at POS by such distributors consumer seeking credit would be placed at
even greater risk of financial loss should their future circumstances change.

Once customers have got their loan agreed, the risk of not being able to repay it in 6 months
time is of no concern to them. They do not then seek stand alone protection evidenced by the
massive protection gap in the UK.

Consumers do not appear to be very good at assessing personal risk, or what may happen in
the future and no independent tools exist to allow a consumer to make informed decisions on
their own.

They will have assumed their trusted financial institutional brand distributor will have done
that for them and generally will have assumed they have received "advice" for both the credit
product and any linked PPI (and for that matter, any other insurance sold to increase the
distributors commission income, home, motor, travel, life etc)

Stand alone PPI & adverse selection.
We agree, stand alone PPI does create a higher risk of anti selection. We are of the view (
from experience) that the new consumer actively seeking Unemployment cover only, not
linked to a new mortgage of loan purchase, may be only seeking PPI cover because they are
at risk, and know it.

3 anecdotal references.   ( why PPI wordings have developed)

1. We (as no doubt were other PPI providers) were contacted by some Rover car workers
(after the Rover closure announcement) demanding to buy stand alone Unemployment only
cover, and we were in one case threatened with an FOS complaint for NOT providing PPI
cover.

2. The writer was personally involved in a PPI claim on a credit card where the consumer had
applied for a card with Credit card PPI and then purchased a car on the credit card, after been
made or notified of redundancy, in the genuine belief that after 10 months the car would be
paid for by insurance.

3 We are aware of self employed persons employing wives and family members for 6 months
at higher than average" salaries" to then make them redundant in order to pursue a claim
which was engineered to pay business debts
Consnmer perception of what PPI should do for them
Consumer perception of what PPI is all about, is not the same as the market distributors or
PPI risk underwriters. Indeed most consumers today consider insurance contracts almost as a
maintenance contract to pay for things that they fail to look after properly.

Debt or Risk Management
Credit product providers and distributors are mainly concerned about the individual's ability
to finance the debt raised with an IT driven rules based credit scoring system to assess credit
worthiness and prevent fraud. They are not adept at looking at the "what if "risks of someone
meeting future payment commitments scenarios. That is one reason why they offer "free"
PPI for initial loan periods, or encourage their customers to take the "inclusive" PPI or
"protected loan".

Risk Assessments
Customers seeking credit do not consider the PPI risk as a separate purchase, or undertake
any holistic review of the financial risks they face when taking on additional debt. It's a
spend now, pay later (or never) consumer problem. We hear of students( Mintel) taking on
personal debt now, with plans to use an IVA once they leave full time education to write off
their unsecured debts over 5 years.

Consumers "Jam Jar" mentality
Consumers seem to think of insurance in 'jam jars", so PPI is added to each loan, credit card,
mortgage, car finance resulting in multiple PPI policies. They also buy car insurance from
one insurer, and household from another depending on the issue under consideration (ie who
is the cheapest) at that moment.

There is no such thing as an "Insurance Account", like there is or example, a Mortgage or
Loan or Credit card Account, insurance is a "bit part" added on, as and when they think
about it , usually at the point of sale or some direct marketing offer.

Customer Product Awareness.
Different distributors are used for each PPI product, due to the brand distributor control or
monopoly, and the end buyer Iconsumer is not equipped to tell each firm they may deal with
what PPI cover may or may not be included in other credit products they have with other
firms.
So, if customers are unable, or unwilling to or incapable of telling a new distributor the full
details of PPI they mayor may not already have, or what their employers mayor may not do
if they were off sick for any period, that distributor cannot (even if willing and able to) give
advice on the full "lifestyle protection needs", but can only talk about the generic need to
protect that one specific financial commitment.

Distributors seem to seek to set their retail price of the PPI add on at a cost "equivalent" to
their competitors creating a kind of informal "cartel". PPI insurers can only offer distributor
guidance on the retail pricing to achieve the profits targets being sought.

FSA Regulation
The intermediary market has other issues to contend with being generated by the FSA itself,
for example, a mortgage broker also selling protection and general insurance, may have to
cope with MCOB, ICOB and even COB rules. MCOB is very prescriptive relying on IT
systems for sourcing mortgage and producing compliant documents, whereas ICOB is more
principle based without a prescriptive Demands and Needs Statement.
In our opinion, many mortgage intermediaries are unable to cope with such disparate rules
and so are starting to simply give up selling stand alone GI and in particular MPPI, which in
their eyes is the more difficult sale in a principles based regime.
Many have simply reverted to selling insurance on the cheapest price, to avoid giving
"advice" at all. It is easier to allow the consumer to buy the distributors GI and seek an
introducer fee from them.
Substitutable products.
This long running & sometimes heated "expert" debate on possible substitutable product is
we may suggest, be skewed because of historical and regulatory issues.

For example, many Income Protection IP products were, and still are written by insurers
under historic "long term insurance" rules and come under COB regulation.
IFA's traditionally sell Income Protection (or PHI); Mortgage           Brokers    and Banks(
Distributors) sell MPPII PPI and never the twain shall meet.
Protection used to be called "Non Regulated" life insurance, and now are "Pure Protection"
products, with PPI being a Non Investment Insurance Contract under ICOB,

PPI will alter again under NEWICOB in 2008 as it becomes a Protection Product with added
oral disclosure rules. Stand alone MPPI sales will be the hardest hit as intermediaries
abandon PPI sales.
Advised & Non Advised sales
We have a complex raft of distribution channels: "Tied",            "Multi   Tied",   "Directly
Authorised" and "Appointed Representatives" selling PPI.

We have "Introducer Appointed Representatives" and we have "Networks",             who can be
either FSA registered Principals for any or all of the above, in any combination

We have insurers selling direct and via Affinity brands, and to add to the consumer confusion
the FSA allow both "advised" and "non advised" sales via any channel.
This is nonsense.
The average financial services consumer has little to no idea what protection he is buying,
why, or from whom, in desperation consumers buy insurance on the one common factor they
can grasp- the price. Distributors and insurers continually fuel the problem by constantly
marketing insurance with "price matching" guarantees or "cheaper" than you pay now offers.
Consumers play the game, and as a result insurance does not have any perceived value, or
worth, and its all subject to a price driven "deal" every year.

Even quotes do not mean that this the price you pay, with "free" periods or "payment
holidays" or "price match guarantees" & "cash-backs"

Insurers like monthly or annual renewable policies, as they are able to decline policyholders
who make claims at the next renewal, if they wish to. Insurance must be the only commercial
industry trying to get rid of existing customers, whilst offering incentives to get other
customers it thinks are better.
Industry Summary

May we offer an opinion (from a stand alone PPI practitioner) with over 20 + years
experience in the PPI market as an underwriter, a distributor, and latterly as an independent
intermediary.

   •   PPI underwriters are not making excessive profits from PPI, in fact some are on such
       tight margins, with increasing claims, the current situation may make some exit the
       PPImarket
   •    Other PPI insurers will of course take their place but they may be non UK based
        insurers who will achieve access to UK markets via FSA "pass-porting" them in
       without checks
   •   Banks need to make growing profits to fund ever increasing demands for credit at
       very low margins and have increased credit risk and have poor credit control or
       underwriting procedures
   •   PPJ products offered by banks are constrained by legacy IT systems, they cannot offer
       stand alone PPJ however much there is a desire to do so.
   •   There is nothing different in the PPJ market that does not occur in any other financial
       and insurance market. Banks and Building Societies have POS monopolies with
       Household Insurance for the own clients. Car Distributors have POS monopolies for
       car fmance and gap, warranty and now tyre and MOT insurance; Travel Agents have
       POS monopolies over travel insurance and Solicitors (via claims farmers) have
       monopolies over the ATE legal expenses market.
   •   Insurers and distributors are seeking new POS advantage all the time to create niche
       markets they can exploit "affinities" with volume sales being the driving force
   •   Volume sales mitigate the anti-selection problems and give critical mass numbers to
       allow cover on some risks otherwise considered unattractive.
   •   Lengthy & extended investigations into 2008 on PPJ will not be productive, as those
       wishing to maximise profits will find alternative products (GAP, Warranty, and the
       growing Tyre and MOT insurances) fmding their way in front of their consumers to
       replacePPI
   •   The issues are more regulatory based than strictly competition biased, with a need to
       improve both consumer awareness of personal debt and general insurance
       intermediary's competency of advising of protection solutions including PPI.
   •   Sales of PPJ can only be done properly on an advised basis
   FSA or Competition     Commission issue?

   We suggest the concerns of the Competition Commission would be addressed as part of
   the overall resolution of the regulatory issues FSA have already identified.
   These were, and still are :

   •   There is a risk of inappropriate     sales. According to FSA around half of the firms
       failed to take reasonable steps to ensure that customers did not buy policies on which
       they could not claim or which provided only very limited cover.
   •   There are inadequate controls in place for non-advised sales: about half of the
       firms selling on a non-advised basis did not have adequate systems to stop their staff
       giving advice or were providing information that amounted to giving advice.
   •   Advice on PPI is often likely to be poor: most firms did not have systems in place to
       assess suitability adequately.
   •   There is an over-reliance on product documentation given to the customer at the
       expense of explaining the policy to the customer orally: most firms selling by
       telephone did not give sufficient information on exclusions.
   o   The quality and timeliness of product and price disclosure by some firms selling
       single premium policies was poor.
   o   mis-selling The level and structure of inducements and targets for sales staff could
       encourage mis-selling in some firms. This is the price and retained "income" by the
       distributor, but a simple "x" or "y" % of a retail rate is not a true measure of
       "commissions" as the CC and FSA need to understand which party meets ancl pays
       for the distribution, IT claims, and marketing costs.
   o   Training and competence of sales staff was not adequate in around half of firms.
   •   Compliance monitoring was variable and in some cases very poor.

Payment Shield influence

   In the stand alone PPI channels ie Mortgage Broker Intermediaries) some observers may
   consider a near monopoly situation operates where Towergate /Payment Shield
   effectively dominate / control the MPPI sales via mortgage intermediaries, to the point of
   effectively dictating PPI market rates, intermediary commission levels and product
   propositions.

   Payment Shield are able to use the same distributor tactics, but in this case the monopoly
   is over their customer ie intermediaries built up over 10 years of excellent marketing of a
   simple proposition aimed at increasing the income for intermediaries

   1. Product proposition   - 3 months "free" , but with a product pricing structure that is
   more expensive that their other alternative "Best quote" PPI product.

   When is "free" not "free"? if it costs more than their Best Quote?

   2. 27.5% commission + network over-riders.       If a competitor cannot match or better
   this commission rate, PPI alternatives will simply not be offered to customers despite
   competitor offering a superior PPI product.

   3 pay.indemnity   commission up front during the "free cover" period

   4 IT systems. Early integration with sourcing systems used by brokers Mortgage Brain,
   TriGold, Exchange which now also demand over ride commissions.

   The end consumer price and product cover is largely irrelevant in this proposition.

  The consumer will in some cases get the PPI product that pays the most commission to
  the seller, or makes the sale proposition ("3 months free") easy for the non advised sales
  force to make. The quality of cover is largely irrelevant as many intermediaries do not
  appreciate the implications of "back to day one" verses "60 day deferred period" benefits.

  The entry path for new PPI competitors in this distribution channel is severely hindered
  by the wider PPI market's inability or unwillingness to match 3 months "free" cover
  AND still pay brokers indemnity commission up front.

  Others are fighting by offering what may be considered above average commissions
  (32.5% indemnity commission) to the end seller, plus whatever over-rider a Network may
  demand to promote an insurer to its tied membership.

  Until a competitor can reach a critical mass of existing policyholders to fund this up front
  commission demands, commission can only be paid from received premiums unless it is
  being subsidised elsewhere.
    Mortgage brokers are tied into Payment Shield to the extent that not using Payment
    Shield for new business over time their historic renewal business commission will be
    stopped.

    Mortgage Networks have experienced some "reverse compliance" over the choice and
    management of PPI panels where, in their drive to achieve their "enhanced buying
    power" as a network and attract new Appointed Representatives on the basis or greater             I
    buying power ( ie higher commissions), they are committed to use Payment Shield to
    protect existing renewal or "passive" commissions.

    "Would be" PPI competitors and new entrants are forced to offer bigger sales incentives,
    pay higher commissions, build free IT platforms, or build "like for like" products that
    become "me too" Payment Shield policy clones, so constraining the market and product
    innovation.

    This cannot be good for a long term competitive stand alone PPI market

    The position and actions of market aggregators like Towergate via brands such as
    PaymentShield should perhaps be regarded as a distributor, exercising considerable
    influence over competition in a particular market

Remedies

Whilst we appreciate it many be too early for the Commission to start putting forward
remedies, may we suggest some key remedies for consideration will include

1 The quality and ethics of intermediaries and networks
The promotional activities of networks to their members to be more closely controlled.
The relationships between a provider paying for advertising or hospitality and the amonnt of
prominence it receives is recorded.
Panels should be checked to see the relative sales of each provider compared with the
commission % it pays

2 The banning of "non advised" sales for PPJ if linked to a credit product which is sold
on an advised basis.
A distributor must not be allowed set themselves up in the eyes of the consumer, as expert
advisers on loans, mortgage and credit cards, and then not give advice about a persons
financial risks in accepting that debt, and just add on insurance, or bundle it in on a "non
advised" basis.

Advisers by definition must "advise", and there must be an evidenced benchmark level of
minimum competence, which I see as the ClI : Creditor module in CII Broker Assess.
3 POS Competency and Robustness
General Insurance is the only regulated product stream where no formal industry
qualifications are needed. Advisers failing the grade in other disciplines revert to selling
general insurance based on the cheapest price or most commission they can get, by running
for cover under a Network seeking a critical number of Appointed Reps to justify their
demands for higher commissions. There is no consideration of quality

The only "non advised" PPI sale can only be a self selected on line purchase, the danger here
is the drive towards commoditised PPI based on cheapest price and the quality of the product
will fall.
If insurers used risk based pricing for PP insurance and rejected customers for PPI cover
even if the distributor was prepared to lend, it would interesting if the distributor still offered
a loan or a loan at the same rate.
4 pas advantage is made transparent
Distributors must be able to offer own brand PPJ at the pas at prices they deem appropriate,
but must say verbally and disclose in writing that the customer can buy their own PPJ as a
stand alone product, and the taking of the distributors own PPJ is not a condition of getting
the loan! mortgage Icredit card.
S Comparison PPI product tables
Once the FSA comparison PPJ tables is ready and online, all distributors with own brand PPJ
products would be obliged to give their consumers a list of stand alone PPJ providers
available, or provide access to the FSA table to their online users to show why their own
brand PPJ product is "equivalent" or "better than" the stand alone alternatives.

Product competition would improve, pricing would become more transparent and consumers
awareness of PPJ as a stand alone purchase after the consideration of risks faced v price v
alternatives would become clearer.

Products would not get cancelled for ill informed reasons, and claims farmers trying to create
a new mis-selling compensation market would be curtailed.
6 Separate responsibilities for credit and insurance services in large distributors
Distributors must have clearly defined and separate operating divisions or reporting lines for
their credit and general insurance protection operations. The underwriting or eligibility rules
for one must not restrict, constrain, or affect the selling, pricing or withdrawal of the other.
7 Price Transparency
The cost of insurance must be transparent so the customer has 2 monthly payment figures,
with the ppi insurance + tax and without ppi with suitable risk warnings.

6 Refunds
The cancellation method for insurance, must always be an simple "pro rata" refund basis of
any unearned insurance premium (less any justifiable fees). "Actuarial" methods without
defining what that means in plain English should be barmed. A No refund position is
acceptable if a contract has "performed" ie a claim has occurred and benefit paid.

7 De linking of credit from PPI product
The cancelling of PPJ should not require the cancellation and re issue of the loan at new
terms (without PPJ) and herein lies another problem, that most loan PPJ costs are managed
in legacy unsecured loan management systems, hence the use of Rule of 78ths to work out
premium refunds.

8 Pay the PPI claims direct to the policyholder I insured customer
Claim benefits must be paid direct to the named policyholder, not a "cosy internal" funding
arrangement where PPJ insurer pays PPJ distributor whilst the policyholder pays the
premium, but receives nothing tangible. Tangible claims would show the consumer that PPJ
does payout where valid claims are made.

9 Price Comparison sites
These must offer more that just a price comparison on PPJ. The waiting I iuitial deferred
periods before benefits are paid and how they are paid must be stated clearly and given
prominence.
                                                                                                 .' .

10 Consistent interpretations  & jargon
The PPI market needs a set of "consistent interpretations" so PPIjargon such as" back to day
one" v "60 Excess Period" claims benefits is fully understood by everyone ( by advisers as
well as consumers)

See enclosed the ABI / CML benchmark definitions for MPPI. There needs to be a similar
benchmark for Loan PPI

11 Price only driven promotional activities to intermediaries by providers should be banned,
and emphasis placed on TCF , consumer protection and value for money

12 Loss leader headline rates Loss leader rates, ie showing PPI rates" .... from 1.95% and
somewhere putting ... * at age 23 .... when the customer base is known to be at average age
30+ should be banned.

I trust some of these suggestions will be considered at the time the Commission is able to put
forward possible remedies.

Yours sincerely,




S Clowes FCII

Managing Director
Chartered Insurance Brokers
Millennium Insurance Brokers Ltd


Enclosures

The ABI /CML baseline MPPI specification
Tbe ABI Code for Selling PPI
Tbe GISC code for selling and monitoring Creditor Insurance sales
Up to 32.5 commission promotion email sent by network
Extract of provider marketing message to intermediaries for enhancing commissions

				
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