News Review: General Insurance


Defining a payment protection insurance provider


by Kevin Paterson, sales and marketing director, Assurant Intermediary


You might have thought that following its final report in november, all the competition commission had to do was get its draft order through Parliament and payment protection insurance would be entering a new era of regulation. that’s the theory, but in practice there is a lot of work going on behind the scenes to get us there. Perhaps one of the most


important messages that came out of the sessions was the definition of a payment protection


insurance


provider. the commission confirmed that the PPi provider is the person who has the direct or delegated relationship with the end client – so effectively the intermediary or administrator. the association of British insurers is going to ask the commission to amend the wording of the definition in the order to match its verbal response during the consultation. the implications of this


change, if effected, would be quite significant for intermediaries. For example, they would be required to complete the annual review or annual statement. it was felt that an intermediary or administrator is more likely to have an ongoing relationship with the end client and should therefore be responsible for co-ordinating the reporting requirements.


this reduces the burden on insurers but could create a minefield for distributors where no-one maintains an ongoing relationship or the original intermediary has ceased trading. in this instance, responsibility could be delegated to the product provider – however this has not been confirmed. the intermediary or administrator would also be required to complete the reporting to the office of Fair trading. concerning the point of sale


prohibition, the commission has confirmed this applies to the person arranging and/ or providing the credit. the credit period starts when the customer first asks for information on the provision of credit and concludes when the credit agreement is confirmed unconditionally or concluded. it is at this point that the seven-day exclusion period starts. clarity is still required as to whether the ‘unconditionally bound’ to provide the credit means ‘contract completion’ or ‘offer’ in the context of longer term credit contracts such as a mortgage. a client can initiate the sale


but must do so independently otherwise the sales process can be initiated after the seven-day ‘break’. the order cautions against trying to avoid or circumnavigate the prohibition and provides additional guidance as well as warnings on when to invoke the prohibition including a ‘reasonable’ assessment. another important point: a


firm cannot offer inducement to the customer to take the policy. the wording in the order is quite tight and


implies that any form of discount, gift or enhancement is seen as an inducement. there was much


speculation in the lead-up to the final report as to the direction of the product itself and potential new types of protection that could take its place. debt waiver or debt free products are common in the uSa, but have not achieved a similar foothold in the uK. the commission has confirmed that it views this type of protection as acceptable – provided it is not used in the same


POINT OF SALE OR POINT OF CLAIM – WHAT IS THE DIFFERENCE? Last year, Aviva announced that it was planning to launch what it termed a ‘game- changing’ short-term income protection product in 2011 - the game changer being that it would be underwritten at point of sale which would increase successful claim rates. How important is this


move towards underwriting payment protection insurance at the point of sale? What does it really mean? Fundamentally, it is aligning


PPI with the way every other personal lines insurance is underwritten. Some providers have half-


heartedly looked at adopting a more robust underwriting approach at the point of sale, but declining an applicant who happens to work in a particular occupation or for a particular employer is unfair and simply favours the insurer by trying to mitigate as much risk as possible. In our view,


way as payment protection insurance. the commission has been crystal clear, reaffirming that if a proposed new protection product looks, acts or feels like PPi or short-term income protection insurance then it will be treated as such and subject to the order. indeed, the deputy chairman of the commission, Peter davis, commented “don’t go there as we will all be back here [discussing new regulation] in a very short space of time.” at the very least, that’s pretty clear then!


underwriting at the point of sale should start from the position of looking to provide cover and then adjusting the premium to reflect the risk. This means that the policy


is priced according to the risk profile of each individual when they buy the policy. And as a policy is effectively built around the policyholder at the point of sale then, barring the consumer unintentionally providing inaccurate information, there is no reason why any valid claim should be turned down. Contrast this with the historic situation whereby claims have been underwritten and assessed at the point of claim, which has lead to a fair amount of criticism due to the uncertainty it creates. We believe this is something that has fundamentally got to change if confidence is to be restored in the product in future.


I believe this represents a massive step towards rebuilding the credibility of this type of protection.


mortgage introducer FEBRUARY 2011 17


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