June 5, 2008 | posted by Pam Atherton in Banking, Credit Cards, Insurance, Loans, Mortgages |

An investigation by the Competition Commission into the payment protection insurance market has found that customers are being overcharged by £1.4bn a year.

PPI is insurance against not being able to pay off loans and credit cards, if you fall ill or get made redundant.

As expected, the Commission found that there was a lack of competition in the market and that customers are being overcharged and often mis-sold to.

It suggests that companies might be banned from selling PPI policies to customers when they take out  loans and that it might cap prices until greater competition drives down the cost of the insurance.

Commission deputy chairman, Peter Davis, said that lack of competition had arisen because policies are sold alongside loans, credit cards and mortgages, at the point of sale, without the customer having the chance to shop around and that this had led to high prices.

Many customers also do not realise that the insurance is often bundled into the cost of the loan and many are unaware of policy exclusions regarding employment status and medical history which might preclude them from making a successful claim.

Competition Commission deputy chairman, Peter Davis,  said that PPI providers were not competing either on price or quality of the product. “Neither do they appear to do much direct advertising of PPI to win customers from each other,” he said.

Mr Davis said the Commission would have to do further work to decide on remedies to the lack of competition.  But given that the PPI market has been under investigation for over two years, consumer groups expressed dismay that the Commission required further time.

But the report does suggest that advertising and marketing material should be in a standard format so that policies are more transparent and easier to compare. Policies should also be renewed annually, with customers being given an annual statement showing the policy’s cost, allowing them to can shop around and cancel the policy, if necessary.

The Financial Ombudsman Service has seen an upsurge in PPI complaints over the last year,  80 per cent of which have been upheld in favour of the consumer.