The Office of Fair Trading in the UK has launched a market study to look in depth at the payment protection insurance (PPI) sector. The study forms a follow up to an investigation instigated by a super-complaint from Citizens Advice towards the end of 2005.

PPI is applied to a number of credit products including mortgages, loans and credit cards and protects a borrower’s ability to keep up the payments on the loan in case of accident, sickness or unemployment, usually for 12 months or sometimes longer. Around 6.5 to 7.5 million policies are taken out each year generating premium income estimated in 2003 at GBP5.4 billion.

The OFT response to the super-complaint identified a number of issues which pointed to the sector not working well for consumers and which indicated the need for a more detailed examination. These issues include:

– consumers face difficulties in getting information they need about alternative suppliers and the information available is often too technical to be understood easily

– there is a wide degree of variation in pricing in the sector

– gross profit margins appear high, PPI claims ratios are low compared to other general insurance products.

The market study will examine these issues in more detail and will also look at:

– the relationship between the various players who supply PPI and how this affects the sector

– how the product is sold to consumers and what influences their choices

– the impact exclusions have upon consumers’ ability to shop around

The OFT will consult widely with the industry – a business survey will be sent out shortly to lenders, insurers and intermediaries. A detailed survey of consumers will also be carried out. The OFT expects to publish its report by the end of 2006.