The Post Office: Which?'s payment protection insurance research

The Post Office has applauded the Which? research highlighting underhand sales tactics where by payment protection insurance (PPI) is automatically added to a loan, but is not compulsory.

Post Office head of communications Claire Oldstein said: “Many customers have little understanding of PPI and some do not even realise they have this insurance in force. Others, who have been at the hands of aggressive sales tactics, can feel they have no choice but to take the expensive policy tied to a loan or credit card if they want their application to be accepted.”

Customers with personal loans that include payment protection insurance could get a significant refund if they seek a better protection deal and switch, according to the Post Office.

A customer with a loan of £7,500 over 5 years could receive a refund of £1500 if they cancelled their loan protection, but kept the loan in place. The refund is a portion of the insurance premium that was charged upfront and added to the loan amount, and can be paid either by reducing the customer’s monthly loan repayments or as a lump-sum refund.

The Post Office is urging customers to challenge their loan provider to find out the true cost of their payment protection and compare this to better value standalone deals on the market.

Claire Oldstein added: “If we want customers to trust our industry, these aggressive sales tactics must cease to allow for a more transparent and fairer marketplace."

The Post Office recently responded to the Competition Commission’s inquiry into the payment protection industry, and advises that the following areas should be vigorously investigated:

The cost of PPI

The cost of PPI differs greatly from provider to provider, and the cost of people’s premiums is rarely linked to the cost of providing the insurance and paying claims. Companies have been making vast profits from this insurance for decades. If people do not shop around for an independent deal, they could end up paying far too much.

Single premium PPI

There should be an end to single premium PPI. This is loaded onto a loan so that interest is charged on the premium at the same rate as the loan, and is not disclosed in headline APR’s. This style of PPI has no benefit to anyone apart from the providers raking in huge profits. About 50% of personal loans arranged each year have single premium PPI built-in and customers have to actively opt out as the insurance is often automatically included in the quote. Many customers are unaware of this.

Suitability

Providers must make it clear that they are selling products to people who can actually claim on them. There should be more detailed enquiries by the lender / PPI provider into the borrower’s suitability for the product – e.g. whether the borrower is self-employed, or if in full-time paid employment, that they work enough hours per week to qualify, what their current insurance policies or work benefits are and whether they have any pre-existing medical conditions.

What is covered?

Providers should be covering a customer’s entire outgoings (i.e. net income) rather than covering one product or a specific debt. If they have comprehensive work sickness benefits or have any other kind of income protection, every policy that they are paying premiums on may not pay out in the event of a claim, as you cannot double up on benefits. Consumers could be wasting considerable amounts of money paying for a number of policies that may never pay out.

Greater information provided

PPI providers must make it clear to people what the product exclusions are and the terms that any claim will be based upon. Many policies exclude back and stress related claims (statistically the most common reason for being unable to work) and any previous condition suffered in the past 12 months (this is also renewed every year). Claims are usually paid out for 12 months (on some occasions 24 months) then the policy ceases.

Standalone PPI products often offer more comprehensive cover with cheaper premiums. There should be an open market option so that providers have to inform customers that there could be other more suitable products on the market. Fairness and trust needs to be restored to the market after much negative press.

Customers need to know the product providers they can trust, otherwise they may decide to trust none at all.

The Post Office Lifestyle Protection product can be used to protect up to 60% of an applicant’s gross monthly income up to a maximum of £2500, covering all their outgoings for 12 months rather than a specific debt.