Payment Protection Insurance, or PPI, as it is commonly known, is fundamentally an insurance policy that should be offered to loan applicants to safeguard an agreed monthly finance premium should they become ill, be made redundant or die. Payment Protection Insurance generates billions of pounds for banks and building societies and is widely recognised as being routinely mis-sold. We know of many instances where our clients have been forced to buy an expensive policy as a condition of being offered a loan.
Sometimes the client is made aware of the PPI policy but is forced to take the policy out because it is “part of the agreement or loan” and that the loan is conditional on taking out the PPI. The only reason the client is forced to take the policy out is to massively increase the profit margin of the seller’s product or the Loan Company or both.
The average profit on a PPI policy is around 400-800% and is equal to approximately 30-45% of the total debt.
The amazing fact about PPI policies is that the number of claims which are honoured is almost nil. In fact, they were not designed to be claimed upon and the policy provider will wriggle out of a claim by any method necessary. For example, the single largest reason for absence from work in the UK is “back problem”. This is specifically excluded from cover with the majority of PPI policies. It is estimated that between one in six and one in four people suffer from mental health problems at some time in their life. This is also excluded. The policies are often sold to people who are self-employed or on fixed term contracts. These categories are also excluded.
This industry is huge, with massive profits. Pound for pound the most profitable insurance product in existence with no marketing costs, no acquisition costs, no point of sale costs, no staffing costs etc with virtually no claims being honoured.
Further, consider the figures below:
The sale of PPI props up almost all banking profits. For example, at the internet bank Egg, PPI sales accounted for 20% of its pre-tax profits in 2004, 17% at Lloyds TSB, 12% at Alliance & Leicester and 11% at Halifax.
