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OFT study into PPI following super-complaint

Valuable retailer profits generated by payment protection insurance schemes could be eroded if an Office of Fair Trading study into payment protection insurance (PPI) finds that consumers are not getting value for money.

Although the OFT says the market study is not examining “one particular sector”, PPI within the automotive F&I market is certain to be scrutinized with roughly 14% of UK loans going into buying cars.

While sales processes, tightened up under FSA regulations, are unlikely to be a major issue, areas of concern highlighted by the OFT after a super-complaint from Citizens Advice include possible excessive premiums and high profitability tied to relatively low claims ratios.

An F&I pundit warns: “It is down to whether or not premiums are deemed high relative to payouts and the consequences of that could be charging lower premiums or making higher payouts. Either way F&I, especially credit insurance, remains a core profit source for retailers so the industry is concerned changes and reduced margins might result.”

Figures from 2003 show that overall PPI claims ran between 15% and 20% against 74% for motor insurance.

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