The Competition Commission (CC) has appeared to backtrack on its proposal to prohibit the selling on Payment Protection Insurance (PPI) at the point of sale.
In its report published on 29 January 2009 the CC found adverse effects on competition in the markets for PPI and decided that a package of remedies, including a prohibition on selling PPI at the credit point of sale (POSP), would form as comprehensive a solution as is reasonable and practicable to the AEC and detrimental effects on customers.
However, it has now found new evidence that has caused it to reconsider the effectiveness and proportionality of its remedies package for retail PPI. That evidence came from qualitative consumer research by GfK, relating to customers’ interest in searching for alternative PPI policies. In light of this new evidence and its assessment of it in its remittal provisional decision, a Supplementary Remedies Notice invites comments on the actions that might be taken with regard to retail PPI by the CC or that the CC might recommend for implementation by others, for the purpose of remedying, mitigating or preventing the AEC concerned or any resulting detrimental effect on customers.
The remittal provisional decision noted that the GfK research had found that retail PPI customers would welcome time to think about their policies, and search for alternatives, but that in practice they were unlikely actually to search for alternative policies. A key driver for this appeared to be that retail PPI customers generally pay small insurance premiums each month and most take a monthly view of their finances. To these customers retail PPI is not perceived as a significant monthly outlay, and therefore not something to which they pay much attention, or for which they would be likely to seek a better deal.
In the CC’s view this evidence suggests that there would not be many retail PPI customers who would in practice search for alternative policies. Those customers more likely to search would be those for whom retail PPI premiums were larger than average, and/or who already held other PPI policies or short-term income protection (short-term IP) policies.
This new evidence suggested to the CC that customer inertia, driven by low balances, meant that it could not be sure that by imposing a POSP alongside the other remedies the CC would encourage sufficient customers to search to generate an effective competitive constraint on retail PPI providers. It found that retail credit customers have, on average, relationships with more than four financial institutions. However, in light of the small monthly premiums paid by consumers and their attitudes as evidenced by the GfK research, The CC could no longer be confident that its remedies package would be substantially effective in relation to retail PPI.
The CC invites views on whether the point of sale prohibition would be effective in enabling those retail PPI customers who are interested in searching for alternatives to compare PPI products offered by different providers, by giving an opportunity to make such a comparison and raising awareness of the alternatives. The CC also invites further views from parties about the appropriate specification of these measures.
The CC also considers that any remedies it chooses should apply to all retail PPI providers.
The parties to this inquiry and any other interested persons are requested to provide any views in writing, including any additional or alternative remedies they wish the CC to consider, by Friday 4 June 2010.