en-us http://backend.userland.com/rss Your Friends @ Myvesta.org.uk (stever@myvesta.org) myvestaukblog_archive.html stever@myvesta.org 115815908719419987 Insurers, which are already under scrutiny from regulatory and competition watchdogs, are to better equip consumers to buy payment protection insurance (PPI) by launching a buying guide and providing clearer pre-sale information for the cover.

The move to raise customer understanding of payment protection, which is sold as an add-on to credit cards and loans and is meant to help consumers repay debt if they are unable to work, is at the heart of the industry?s offensive to stave off enforcement action by the Financial Services Authority (FSA).

The FSA has threatened to tighten its rules if the industry does not show how it will improve poor selling practices and weaknesses in product design, uncovered during a mystery shopping exercise last year.

The regulator was concerned that the product was being sold to people who could not claim, because they were self-employed, and that sales literature was often unclear or did not highlight significant exclusions.

In setting out its proposals to address the FSA?s concerns, Jane Milne, head of household and property insurance at the Association of British Insurers (ABI) says: ?One of the main things we want to achieve is to help customers think through what sort of insurance they actually need, to make sure that they are covered for their sorts of eventualities.?

The ABI is to work with its members to produce a guide which explains how payment protection works and how it differs from other protection products, including income protection and critical illness cover. The guide will also contain a checklist of key questions consumers should ask when buying PPI.

The industry will also introduce guidance on ways of communicating key features using standard headings in policy summaries, to make it easier for customers to compare products. ?We will be looking at ways of equipping customers so they can buy more effectively,? says Milne.

In its submission to the FSA, the ABI, which represents the biggest underwriters of insurance, said distributors of PPI products would also be encouraged to improve their sales staff training. ?Clearly this is one of those issues where we need to work very closely with the distributors so at the point of sale the conversation is happening properly,? says Milne.

The ABI is also to finalise work on its guidance on consistent interpretations, to improve the claims handling process. The aim of this is to ensure that key definitions such as ?self-employed and ?contract worker? do not differ from insurer to insurer.

The industry has clarified its stand on refunds on loans that are repaid early, saying: ?Where customers have repaid their loan early and have not made a claim, ABI members will make an appropriate premium refund.?

Despite these efforts to standardise promotional features of the product, Milne says the industry is not moving towards a ?baseline?, from which consumers could expect certain types of cover as standard. Consumer groups say a baseline model, would help consumers compare deals.

?There isn?t a one-size-fits- all on this, but we do want to make sure that people are able to make realistic comparisons and choices. What we are looking at is whether we can come up with some sort of guidance which says: This is typically what you might find in a PPI product,? says Milne.

The ABI also defended the practice of insurance being sold as single premiums, even though unlike regular premiums, the total cost of the insurance is added to the loan, resulting in the customer paying interest on the combined amount.

The important thing is that when people are buying they understand the pros and cons of each approach and they can make the choice which suits them best,? says Milne.

Consumer groups say the initiatives were a ?small step? towards addressing the FSA?s concerns but doubted they would do enough to stop misselling.

This is a useful step but there is a heavy reliance on consumers to understand what they are being told,? says Peter Tutton, of Citizens Advice, the charity which made a complaint to the Office of Fair Trading about the cost of PPI.

The FSA says it plans to meet insurers in April to discuss their proposals but plans to check on their improvements with a second round of mystery shopping.

Copyright The Financial Times Limited 2006

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