CC publishes views on PPI

The Competition Commission (CC) has published a consultation document inviting views on its current thinking on the nature of competition in the payment protection insurance (PPI) business in the UK.

The document sets out the CC's emerging thinking on competition in the supply of all PPI (except store card PPI) to non-business customers in the UK on the basis of evidence analysed to date, as well as identifying areas where it's seeking additional evidence and the issues on which it intends to concentrate in the period prior to the planned publication of its provisional findings in May 2008.

PPI products are designed to protects a borrower's ability to maintain repayments and help them avoid getting into debt should they be unable to keep up their repayments, due to accident, sickness or unemployment.

PPI is sold to cover a variety of financial products, but over 90% of PPI sold in the UK in 2006 was either: personal loan PPI, credit card PPI, mortgage PPI or second-charge mortgage PPI.

Inquiry Chairman and CC Deputy Chairman, Peter Davis, said: "After examining a substantial amount of evidence, we think there are some areas that we need to explore further.

"We are far from making up our minds, but we are focussing on the amount of competition for PPI that distributors face at the retail level. It is clear that the decision of whether or not to take out PPI is an important one and that customers must balance the benefits of insurance against its cost.

"The evidence we have seen suggests that the cost of PPI is in some instances higher than the interest paid on loans. At the retail level the initial indications are that consumers buying a distributor's credit product are relatively price insensitive when they consider buying PPI, and that the competitive constraints from alternative products such as income protection are limited."

Davis adds that if that is the case then distributors might face little substantive competition when supplying PPI to those people who buy the distributor's own credit product.

"We are currently running a major survey aimed at understanding consumer behaviour and our collection and analysis of evidence from the parties is ongoing.

"This work will help us understand the extent and nature of competition for PPI at the retail level. In the course of our inquiry, it has been put to us forcefully that the supply of credit is itself highly competitive and that distributors compete to attract customers, some of whom will go on to buy PPI.

"At the moment our evidence base appears to suggest that there are separate markets for PPI and credit, but our survey and ongoing analysis of the parties' data will help us make an informed judgement about this very important and challenging issue," says Davis.

The inquiry team has so far visited 11 suppliers of PPI (including both underwriters and distributors), and held hearings with 27 interested parties.