Insurers: FSA must help consumers understand PPI

An overwhelming 94 per cent of insurers believe the FSA should take steps to make the difference between personal protection insurance and income protection clear to consumers, according to new research.

Financial advisers LifeSearch asked insurers a range of questions in its annual study and found the vast majority were in favour of better information for consumers on the issue.

A LifeSearch spokesperson said: "The industry and the regulator really should act on this issue."

Income protection insurance pays out in the event of a loss of income and can be used to pay for anything, while payment protection insurance (PPI) only covers repayments on a loan.

Highly-publicised miss-selling of PPI products by banks and other organisations promoting the lucrative insurance alongside loans has led to a bad reputation among consumers.

This negative perception is harming the industry, according to protection experts.

Kevin Carr, head of protection at LifeSearch, said: "PPI is a vastly inferior product compared to income protection insurance, but a lot of consumers aren't even aware of it.

"Far fewer income protection policies are sold than PPI, and this should be the reverse."

Mr Carr explained when consumers buy PPI, it is usually when purchasing a loan from a supermarket or bank, and they are not getting advice – so the consumer ends up with a product that is not necessarily the most competitive on the market.

"The FSA must make sure consumers realise that when they buy a product without advice, they are taking responsibility for their own purchase," Mr Carr said.

The insurance industry has set up an income protection task force to address these issues, while the FSA has introduced rules to improve sales standards.

But more still needs to be done, Mr Carr said: "The FSA has rules in place. What they need to do now is enforce those rules."

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