Controversy

In all types of insurance some claims are accepted and some are rejected, however in the case of PPI the number of rejected claims is high compared to other types of insurance. A primary reason for this is that the insurance is underwritten at the sales stage and is taken out by customers without careful assessment as to whether it is right for their circumstances and without careful attention to the policy eligibility conditions. Individuals who seek out and purchase a policy without advice have little recourse if and when a policy does not benefit them. However most PPI policies are not sought out by consumers and in some cases consumers are not aware that they even have the insurance.[1]

As PPI is designed to cover repayments on loans and credit cards, most loans and credit card companies sell the product at the same time as they sell the credit product. By May 2008 20 million PPI policies existed in the UK with a further increase of 7 million policies a year being purchased thereafter[citation needed]. On average this would mean that at least 72% of the UK's adult population would have one PPI policy. Surveys show that 40% of policyholders were totally unaware that they had a policy[citation needed]. According to the Financial Services Authority 95% of all claims were upheld by the Financial Ombudsman Service (FOS), which means that 95% of PPI policies sold by banks and lenders in the UK were mis-sold. It then follows that, assuming one policy per person, almost 70% of the adult UK population has been mis-sold a PPI policy.

PPI has been widely mis-sold, with this mis-selling being carried out by not only the banks or providers but also by third party brokers. One major high street bank sold almost £400m of PPI with their financial products making an astonishing 80% profit[2]. The sale of such policies was typically encouraged by large commissions [3], as the insurance would commonly make the bank/provider more money than the interest on the original loan such that many mainstream personal loan providers may make no profit on the loans themselves; all or almost all profit is derived from PPI commission and profit shares. Certain companies developed sales scripts which guided salespeople say only that the loan was “protected” without mentioning the insurance or its cost. When challenged by the customer, they sometimes incorrectly stated that this insurance improves the borrower's chances of getting the loan or that it was mandatory.[4] A consumer in a financial difficulty is unlikely to further question the policy and risk the loan's being refused.

Several high-profile companies have now been fined by the Financial Services Authority for the widespread mis-selling of Payment Protection Insurance. Claims against mis-sold PPI have been slowly increasing and may approach the levels seen during 2006-07 period, when thousands of bank customers were making claims regarding unfair bank charges. In their 2009/2010 annual report, the FOS stated that 30% of new cases referred to payment protection insurance. A customer who purchases a PPI policy may initiate a claim for mis-sold PPI by complaining to the bank, lender or broker who sold the policy,