Insurance policies leave homeowners out of pocket

Posted : 09-11-2004

Borrowers who accept payment protection insurance (PPI) from their lender could be paying hundreds of pounds for commission-inflated policies, which may never r pay out, brokers claim.

The warning comes in the wake of the legal challenge by New York attorney general Eliot Spitzer to the US' biggest insurance brokers over their commission earnings from insurers.

Mr Spitzer claims that Marsh & MacLennan and other big US players earn much of their profits from reward payments made by insurers for steering business their way, regardless of cost or suitability for the consumer.

The big UK banks, meanwhile, are steering borrowers to their own insurance policies - provided by wholly-owned or tied insurers - because they are so profitable, according to Simon Burgess, a former Lloyd's of London underwriter who runs a group of low-cost insurers, including Goodfellows.

"It is absolutely comparable," Mr Burgess told the Herald newspaper. "The banks are using a captive insurance company to achieve what is happening in the States.

"Loan protection insurance is a £5 billion industry in the UK, and the key question is what percentage of premiums is paid out in claims. Some banks pay out less than 5 per cent of the premiums, the rest is profit."
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