Competition Commission bans payment protection insurance product

The Competition Commission has banned the selling of single premium payment protection insurance (PPI) together with an array of other measures aimed at creating more competition within the PPI market.

PPI is provided by lenders as a type of insurance, covering borrowers by funding debt repayments on loans and mortgages in the event of them being unable to work or unemployed due to an accident or sickness.

The single-premium PPI works by requiring the whole amount to be added onto a loan in advance, making it subject to interest as well as preventing the customer from switching policies.

The new measures come after a resolution by banks among the biggest in Britain to abolish the product by the end of the month.

Deputy chairman Peter Davis chaired the inquiry into the practice. He said that the reason single PPI policies were being banned was because this would result in an increase in competition in the market.

"We will... make it easier for consumers to switch their PPI policy at a later point if a better deal becomes available. This is why we are banning single-premium policies, which lock-in customers to their current provider to a significant extent," he said. "Annual statements will also help remind consumers how much their policy is costing and of their ability to switch, while other elements of our remedies package will help them to find whether there are better-value policies available to them," he said.

The Competition Commission announced that its recommendations should become effective next year.