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FSA warns on future payment protection products

FSA warns on future payment protection products

Category: Insurance

Updated: 02/11/2011
First Published: 02/11/2011

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This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Providers have been warned that regulators will be keeping a close eye on future payment protection products that are launched.

The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have joined forces to help prevent the problems associated with payment protection insurance (PPI) recurring in a new generation of products.

PPI has been in the headlines this year as the banks tried and failed to overturn a ruling to pay back customers who claimed they had been mis-sold the cover.

The compensation that has since been paid out has run into billions of pounds.

PPI can fall within either the FSA or the OFT's remit and the two bodies are currently consulting on proposed guidance to firms about future protection products.

The FSA said: "This is a key time as the market shifts away from PPI and firms begin to develop new products or product features - such as short-term income protection, debt freeze or debt waiver as elements of a credit agreement or mortgage."

The two organisations have said that they will continue to monitor developments in the market, and that they will remove products if they feel they could be detrimental to consumers

The FSA's guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting.

There are four key areas of concern that providers should think about carefully:

  • firms not properly identifying the target market for the protection product;
  • the protection not reflecting the needs of the intended consumers;
  • the benefit of a successful claim not matching the needs of the claimant; and
  • product features or pricing structures creating barriers to comparing products, exiting a policy or switching cover.

"Firms must learn the lessons of the past and make sure they have consumers' needs at the heart of new product development," said Margaret Cole, FSA managing director.

"That is why we are acting early to ensure firms understand the risks they should bear in mind when designing these products, and how they can manage these risks when developing or distributing the product."

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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