What Is PPI
Payment Protection Insurance or PPI was sold by banks and other credit providers from the early 1980's. It was an insurance product that enabled consumers to protect their repayments in the event of being off work ill, or losing their job.
The insurance covered a whole raft of borrowing types and typically these included mortgages, loans, credit cards, store cards, catalogue accounts, car loans, overdrafts and even secured loans. The insurance was either sold as a "lump sum," added to borrowing from the outset, such as personal loans or secured loans, or via a monthly payment, with, for example a credit card, store card, mortgage or catalogue account.
With practically ever type of insurance, the common theme is that it's underwritten at the time cover is put in place. This would apply to say life insurance or home insurance, where customers have to be very careful not to fall foul of material non-disclosures that could invalidate the cover. PPI or ASU (Accident, Sickness and Unemployment Cover) however was generally only underwritten at the time a claim was made. Coupled with that, the selling of the product required little or no training as it was viewed as a "packaged product." No additional qualification or particular skill was required. It was an easy sell with the very minimum of staff training costs, if at all and a generous commission from the provider to the seller. Normally the prelude to taking cover was no more than 4-6 key questions . Typically these might be some or all of the following -
- You are not in a temporary or agency position.
- You work more than 16 hours per week.
- You haven't consulted a doctor within the last 6/12 months.
- You don't have any pre-existing medical conditions.
- You live and work in the U.K./You are a UK taxpayer
- You are over age 18 and below age 65 at time of taking the cover.
PPI or ASU, could be considered a "scattergun approach to insurance protection," a kind of "one size fits all approach." To explain more, every single customer paid exactly the same price for their cover, be it sold on a "lump sum," or monthly basis. To put that into perspective, an 18 year old female, non-smoking office worker in perfect health wold pay precisely the same as a 64 year old male labourer smoking 60 a day and maybe not enjoying the absolute best of health. What could possibly go wrong?
And wrong it did go! This type of insurance was seen as an easy "hit" for lenders. Low cost of delivery, minimal if any staff training and huge profit margins. Virtually every client was sold the same product, despite the fact it might have been far from best advice. It was "one size fits all." This type of insurance always carried a "deferred period," which was in essence a period of time before you could submit a claim. In more recent times this was generally a month after being made redundant or suffering ill-health, but at the outset of ASU and PPI, some providers sold policies where the initial waiting period was as much as 60 or 90 days. As much of a delay as to make these policies virtually useless.
With the commissions on offer becoming truly stellar, the sale of these insurance policies became a significant percentage of banks' profits with advisors and sales staff being given stiffer and stiffer targets and the mis-selling became rife. We now know that in many cases the percentage profit for the lender was truly eye watering, with figures of up to 70% or more commonplace. By 2008, 20 million PPI policies existed in the U.K.
Finally in May 2011, the FCA banned the sale of single premium PPI. This was following years of campaigning by the CAB and the OFT, but not before a number of leading banks were levied huge financial penalties by the FCA, in what is now acknowledged as the biggest financial mis-selling scandal to hit the British public.
By early 2017, the public had reclaimed compensation of £26 billion from when the FCA started collating the figures in 2010. Industry experts however believe that this figure may only represent 40% or less of what the final compensation bill should be.
Regulation on products of this nature has been in place since December 1989 and then through 2001, with two voluntary codes, namely the ABI and GISC respectively. The FCA in turn became the regulator from January 2005.
Much of the team at Beat the Banks worked in the banking and finance industry throughout the whole period and our belief, based on personal experience and knowledge of the sheer volume and target setting throughout the years, is that the final figure in reality should be well in excess of £100 billion. A truly shocking figure.