PPI - possible solution

[Mike Cranny]

The problem is that the compensation claims are falling on the Broker pot because those that sold PPI have put their companies into liquidation.(some have started again in new names) (FSCS only pays when the responsible party is unable to)

This problem will get worse as more companies go into liquidation and more solicitors advertise for business. Even real brokers will go bust.

The losses of the many will fall heavily on the few.

There is a possible solution - pressure the FSA to take action against the Insurers who issued the policies. (The Banks weren't regulated for TCF at the time, but the Insurers were)

Under the guidance on the responsibilities of providers and distributors for the fair treatment of customers it says:

1.20 When selecting distribution channels, Principles 2, 6 and 7 are particularly relevant.

In particular, a firm:
(1) should decide whether this is a product where customers would be wise toseek advice;

(2) should review how what is occurring in practice corresponds to (or deviates from) what was originally planned or envisaged for the distribution of its products or services given the target market. This involves collecting and analysing appropriate Management Information (MI) (Note (13)) such that the firm can detect patterns in distribution as compared with the planned target market, and can assess the performance of the distribution channels through which its products or services are being distributed;

(3) should act when it has concerns, for example by ceasing to use a particular distribution channel.

It seems clear that Insurers did not perform these actions on their distributor - on the loan sharks that sold their products. Furthermore these concerns go back to even beyond the GISC.

If the FSA could be persuaded to take action against Insurers (who benefited from these policies and enjoyed a loss ratio as low as 20%)
any fines would not unfortunately go to the Broker pot However BIBA/IIB might be effective in persuading the FSA to re-allocate the fines.

Even if it never happens, and brokers continue to pay, it would be fairer than the current outrage.

[Simon Hickman]

Everybody must send an e-mail to the FSA asking them to do this - good piece of thinking Mike

[James Sharp]

And perhaps if the insurers in question were identified, we could ask them about the extent to which they benefited from PPI premiums and then invite them to make a voluntary contribution into the coffers of the FSCS; so as to ease the burden of the brokers who support them in respect of every other class of business... or face a boycott.

[Mike Cranny]

According the the FSCS the fee might double next year.

Anyone who is able needs to star tconsidering tailored income reporting.

I have written to the FSA today asking them to consider action against insurers for breaching the guidance in PS07/11

[davidmd]

And then we face the cross subsidy for banking failures once recoveries have been made and figures finalised. The cap for the banking sector is well and truly breached so unless FSCS rules are changed (and changed retrospectively) we will face huge bills for years to come. We could all pull together and work on higher fees to enable us to stay in business.

Compare how we work to lawyers and accountants. Not perhaps so rife now but there have been cases where a broker obtains a client on the basis of no earnings for the first year (hoping they will retain the client in year 2 and start earning). Can you picture a lawyer or accountant doing that ?

The Chief Exec of AIRMIC made a valid comment at a forum in Manchester last year. A large company was looking at a management buy in deal and they approached a lawyer, accountant and insurance broker for estimated costs. The lawyer and accountant quoted £XXX per hour. The insurance broker (not knowing at that point the full extent of work required) quoted a flat figure.

Whilst competition is healthy it should not be at the detriment of insurance brokers generally. This will only lead to removal of competition as smaller firms fail and others cut back on expansion plans or recruitment. Whether we are small, medium or large brokers we all have a role to play but let's be sensible about earnings.

The IMD 2 possibility of a commission ban might end up as a blessing in disguise as we more closely examine our working habits - thats is what they are - HABITS.

[Mike Cranny]

I have formally written to the FSA in line with my comments asking them to take action against insurers in view of the guidance in PS07/11.

[andrewtj]

In breaking news Lloyds TSB has stopped selling all PPI

[virtuocity]

Geez! No PPI at all? There's a thought.

[davidmd]

There is nothing inherently wrong with PPI/ASU cover. It is the way it was pushed/sold that is wrong. If sold correctly (by brokers) it can be a useful product.

Indeed now banks are pulling out of the field it opens opportunities for the correct sellling of such products.

[Martin Friel]

Just spoke to the ABI and they informed me they (their members) feel absolutely no moral responsibility for how insurer products are sold. Essentially, they are taking no responsibility and rely entirely on the regulator to ensure their members’ products are sold properly.

I quote:
"It’s the regulator’s job to ensure the firms that are selling the products are compliant and obviously insurance companies are not responsible for regulating agents."

Don't hold your breath guys.