Payment Protection Insurance

Payment Protection Insurance (PPI) is an insurance policy that covers people who borrow loans or credit through the payment of the loan for a period on their behalf if the borrower is unable to continue paying the loan. The policy covers persons for loans if one is found jobless, ill or has been involved in an accident and is not able to work. The policy states that one should be able to meet payments if something goes wrong. However, PPI is only used to cover a specified debt. The insurance covers cases of the obtained disability, sudden loss of a job, death or other situations that can make working impossible. Read more info on it on
This insurance on the payment protection is limited. It does not cover for the first three months after one stops working. Other policies do not cover some specific illnesses or the ones, of which a person has already been aware. The unemployed people or retirees are also not considered, since they do not have any source of the income. Some policies do not cover people who run their businesses or people who do not have a permanent employment.
In addition, PPI has age restrictions. On reaching the retirement age, one cannot be covered. Some policies do not cover individuals who are dismissed from their jobs due to the ill-behaviour. PPI is usually provided when one takes a mortgage, credit card or personal loan. PPI can be bought from insurance companies and can be cancelled within a period of one month. One should be paid back for any premium paid. However, penalties are not allowed when one cancels the policy.
The Purpose of PPI
PPI helps people to protect their repayments when one has borrowed a loan. One of the most vital aspects of PPI is that it creates a sense of security for people who have loans. This is because it shields them from the financial consequences of not making due loan repayments. The absolute purpose of this type of policy is that it ensures a smooth process of the loan repayment. Therefore, consumers who have bought PPI are able to recover from such situations of joblessness or sudden illness more quickly and cheaply compared to others in the same position without PPI. This means that individuals can comfortably live within their means financially. As in other insurance policies, PPI promotes the growth of the economy. For over a decade now, this concept has been adopted by several countries as a financial strategy for banks and other lending institutions to the support financial security for their customers.
By ensuring better loan repayment processes, this strategy has supported more borrowing that has led to a tremendous growth of the financial sector of those countries. The UK is one of the leading countries that have adopted this strategy; thus, its financial sector has obtained enormous benefits in terms of the improved lending system as well as the general economic growth. However, this policy has faced multiple scandals over the past few years regarding the misselling of the policy which has shaken the whole idea of PPI.
Processes Lenders Have Adopted Over the Last 20 Years in Providing the Customers with PPI
The provision of PPI started over two decades ago, with the UK having over 20 million PPI customers across the country by 2008. The growth of this policy adoption was substantially fast, whereby over 7 million policies were sold within just one year. In the beginning, approximately more than half of the lenders treated the policy as a separate package from the loan that is being insured. However, several lenders did not separate PPI from the insured loan, selling it to clients as a protection to the loan instead of conveying the information regarding the nature of the policy.
This asymmetry of the information regarding PPI led to 40% of the borrowers in 2008 holding the policy even without knowing it. Many lenders had capitalized on this opportunity for over a decade until 2011, when the scandal was unveiled. This misselling of the policy led to an enormous growth of the financial sector across the UK, because banks were making more profit from the policy premiums than from the interest on the actual loans. However, after the unveiling of the scandal in 2011 which had been on an industrial scale by then, rigorous structural changes were made in the sector by establishing more restricting lending regulations.
Today, institutions, like Rock Law, have been established to address all aspects of the improper treatment of customers who have purchased PPI. Such institutions can follow up with the sellers of these policies to make sure that they provide the comprehensive information to the customers. With the complete information, individuals can make informed decisions as to whether to take up the policy or stay without it. Due to the recent scandals regarding the PPI misselling that had led to the trust in the financial institution being totally ruined, more efforts were made by the British Bankers Association in 2011 to minimise the misunderstanding by establishing new regulations.
Controversy which Evolved in the UK Regarding the Provision Of PPI
In 2011, the whole issue regarding the misselling of PPI by banks in the UK was unveiled. This issue of wrongfully sold PPI had been going on for a couple of years before that time. This prompted the financial service authority to come in and set new lending regulations. It was discovered that banks sold PPI without giving the clear information on what it covered. The banks also made it compulsory for customers to buy the insurance policy (Barrow 2011).
The Causes of Misselling of PPI in the UK
It is advisable for individuals to take PPI by their free choice. Many times people used to take the insurance, because they were pressured to do so. The unclear information may be provided regarding the insurance policy; furthermore, misadvise is another cause of misselling. Thus, the policy may be added to the loan without the knowledge of a client.
Consumer Protection Issues
Misselling is one of the crucial problems that rose in the UK. This is an issue of the relationship between the customer and the distributor of the service. Consumers are usually misinformed when buying PPI. The misleading information interferes with their decision; therefore, they end up buying PPI that does not meet their expectations. Suppliers sold PPI to persons who could not benefit from the policies, namely retirees or the unemployed. The providers of these services were not keen enough about the eligibility criteria, hence, provided products that were not appropriate for the consumers. This was an issue that did not favour the clients. It involved marketing PPI for loans that were small and payable within a month.
Retail Perspective
There are distributors of PPI that have required customers to purchase the loans together with the insurance product. This kind of demand leaves the customer with no choice but to purchase the insurance. However, it may be costly or may not provide what the customer requires; thus, the latter is left without satisfaction. There are firms that have the capacity to increase the market price of its goods and services over its minimal cost. The providers of loans may charge high prices for PPI and make profits that are considerably above the normal revenue. As a result of the market power, the competition among distributors has risen making the commission levels grow. There has been scarce information on the prices of PPI. The limited information has caused limited customer choices. The adequate information should be provided to help the customer in making a right decision.
It was found that the clients did not have the financial knowledge on PPI, whereas it was supposed to be separate from loans, but the consumers were not aware of that fact. They thought that purchasing PPI together with the loan would increase their likelihood of acquiring loans. Clients were supposed to be refunded on the cancellation of the policies. However, the process of refunding them has been taxing. The determination of the rates of refund has proved cumbersome. Moreover, the time incompatibility was another issue of concern. This occurred when the period of the insurance cover was shorter than the duration of the credit product. There were also imbalanced terms where clients were given a limited time to make claims after an occurrence.
Supervisory measures have been put in place to curb the misselling. The guidance on identifying the credibility of a consumer has become essential in this regard. Furthermore, the compulsory information on PPI should be provided to ensure that clients make informed decisions. The suppliers of insurance are required to mention that the insurance is not a must, when one acquires a loan. Separate forms for the loan application and PPI should be provided to show the customers that a difference exists.
In addition, there should be preventive measures aimed at distributors who are making the purchase of insurance from the same loan provider compulsory. This will improve the customers choice. It is illegal to sell PPI at the point, when one is offering a loan. This, however, might bring a decline in insurance sales. To promote the capacity of clients to make a choice, the information should be personalised. The providers of the insurance must disclose the information regarding the price and policies involved. Single premium policies are not allowed, since they have been found to cause an early termination. The process of refunding the clients for the premiums paid has been regulated. The UK requires that the issuers of PPI provide a website ran by FSA, which people can access in order to make comparisons. This is done to ensure that clients make informed decisions.
Furthermore, there were market interventions that were put in place. The statutory actions were applied to correct any problems in the market. Industries decided to put regulations on themselves to enhance their marketing field. To prevent the misselling, companies have obtained a clear complaint handling system with the ensured supervision. Additionally, specific guidelines were provided. Firms were advised to evaluate their sales to avoid massive problems from occurring.
Loan providers are prohibited from being the issuers of the insurance. It was found that creditors who were involved in selling insurance policies were acting in their best interests. A standardized format for presenting prices and characteristics of the products was adopted. This was done to help consumers in comparing the services easily and making the informed choices.

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