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Last Updated: Saturday, 4 December, 2004, 15:27 GMT
Concerns over insurance protection
FSA headquarters
The Financial Services Authority begins its regulation in January

Consumer groups are worried that new rules designed to protect people who are buying insurance will not stop them being the victims of the hard-sell of payment protection insurance.

Payment protection (PPI) is an optional type of insurance which is supposed to protect credit card and loan customers who cannot repay their debts because of ill-health or unemployment.

But critics argue the cover is expensive, and say PPI's many exclusions mean it is not suitable for everyone. Self-employed people in particular cannot generally claim on this type of policy.

But despite this complexity, many lenders sell PPI aggressively, and there are concerns that people end up with insurance they do not need or cannot use.

There are voluntary guidelines in place which cover the sale of PPI. But the General Insurance Standards Council does not have the power to enforce them.

Next month GISC disappears, to be replaced by the Financial Services Authority, which will start to regulate all sales of insurance.

But the consumer group Which? has warned that consumers will still have to be on their guard about PPI.

Strict conditions

Under the GISC code, potential customers must be told certain basic information about the policy at the outset.

Angela Darling, head of policy at GISC says this should include "what the main elements of the policy are, what the benefits are and most importantly what any significant exclusions or conditions are.

It is not suitable for everyone, it gives limited cover and it is expensive
Mike Naylor, Which?
"Self-employed persons can get cover but sometimes there are some very, very strict conditions and certainly the question about pre-existing medical conditions is one that should always be raised".

Mike Naylor, senior researcher at Which? said that unfortunately many banks and credit card companies simply ignore it:

"We have found in the past that companies do not sell these policies properly.

"Payment protection insurance is a very complicated form of insurance. It is not suitable for everyone; it gives limited cover and it is expensive."

OFT investigation

The influential Treasury Select Committee of MPs shares his unease.

A year ago it asked the Office of Fair Trading to investigate the sale of payment protection, and it has continued to discuss the problem with the lenders who appear before it.

However, insurance regulation will change the way PPI is sold.

The onus should really lie with the company to ensure that it is the right product
Mr Naylor
The Financial Services Authority confirmed to Money Box that in future companies will not be able to sign people up after just one phone call.

Before the cover can take effect, customers will have to sign a form saying they have read and understood the terms and conditions.

But Mike Naylor is not convinced that the new rules will go far enough:

"The companies will be able to rely on the fact that someone has signed a piece of paper to say that it is a suitable policy.

"The onus should really lie with the company to ensure that it is the right product."

He said consumers should still be on their guard against the hard-sell.

Unwanted policy

Money Box listener Anna was sold a policy she had explicitly said she did not want. Last month she was called at home by her credit card provider MBNA.

"She wanted to talk to me about a payment protection policy and I said 'I am not interested' [she] just continued telling me about this policy, at which point I said 'I am really not interested thank you very much, goodbye', and I put the phone down."

Anna was therefore shocked to receive a letter a few days later thanking her for getting in touch with MBNA and confirming that her new cover was in place.

She managed to cancel the policy before she was charged for it, but she is angry that the insurance was taken out in the first place.

MBNA told Money Box Anna's case was "an exception". It has apologised for the error and is investigating what happened.

The bank added that normally if a customer does want payment protection, they will be asked relevant questions to find out if it is suitable and told how much it costs.

But Money Box has highlighted concerns about the way MBNA sells these policies in the past.

Back in May, the programme featured Andrew from Greenford. He felt he had been misled into taking out PPI because it was implied that the policy was free.

On that occasion MBNA told Money Box it was satisfied that the call had been conducted in an appropriate manner.

BBC Radio 4's Money Box was broadcast on Saturday, 4 December, 2004 at 1204 GMT.

The programme was repeated on Sunday, 5 December, November, at 2102 GMT.



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