The British Bankers Association confessed that the banks have been mis-selling PPI to consumers. This confession took place last April 2011 and they have settled to reimburse the consumers to whom the product was mis-sold. On the same month and on the same year, there was an estimated amount of £4.5 Billion for the claim pay-outs assessed by the banks. According to the Financial Ombudsman Service in the UK, the rate of complaints regarding mis-sold PPI continues to increase. Is ordering payment protection insurance a necessary evil due to the weakened state of the UK economy?
The payment protection started when the state provided financial support to those individuals who are unemployed due to a job loss and did not have enough money on their savings that would support them until they get a new job. In the last few years, the benefit paid by the government for the individuals who belong to the “job seekers” category is constantly decreasing and the sum distributed by the government is now about £75 per week. The government applied procedures that will determine on who will be eligible for the job seekers allowance and they keep a record of it every month. The insurers saw a breach in the market and recognized that if they piggy back on the government’s job seekers allowance payout process and add-on the funds to a higher amount, they could efficiently endorse it with a few other suitable standards. This innovative thinking resulted in the foundation of payment protection insurance.
The banks realized that this insurance is beneficial instrument as it helps the borrowers continue to pay their loan installment if ever they will lose a job or wouldn’t be able to pay due to sickness or accident. Then the banks started to pressure people to buy PPI or payment protection insurance every time their customers took out a loan and in some cases, they made it is a compulsory obligation to buy. The premium was subtracted from the loan itself and this made banks to gain substantial profits. In some cases, the profits that this PPI has produced were more than the loan itself. This encourages the incentivizing bank employees to sell more PPI. The desire to sell more ended in overlooking pre-existing conditions, type of employment and the contract of employment and all the eligible standards to qualify for a payment protection insurance. This leads for the banks to pay the substantial reimbursement amount of £4.5 Billion because of their greed to gain lots of profits.
On the other hand, the product was established to protect people in case they lost their jobs or got into an accident or illness that prohibits them to work and is the most efficient risk modification product ever created. On its own merit, buying this insurance after making sure all the qualifying criteria are met is a very useful fall back option. It is much more significant nowadays since jobs are scarce. On the other hand, people should not get disappointed with the headlines they see in popular press and disregard payment protection insurance. Good and carefully selected payment protection insurance can be the ultimate savior in terms of financial stability if someone loses their income due to unemployment, accident or sickness.