UK: CC Publishes Its Emerging Thinking In PPI Investigation

The Competition Commission (CC) published on 6 November 2007 its emerging thinking in the payment protection insurance market investigation. It has also published nine working papers going into more detail in specific areas. The CC sets out where the evidence to date appears to be leading and the type of evidence it would need to see in order to change its thinking.

The CC is inviting comments on all these documents by 27 November 2007. Submitted comments can influence the future shape of the investigation and in view of the tight deadline, those interested in PPI should not delay making their voice heard.

The main points of in the CC’s emerging thinking are:

• The CC will focus on the amount of competition for PPI that distributors face at the retail level. In particular, it is interested in evidence to rebut the following views:

  • the CC is examining whether consumers consider the cost of the combinations of the credit and the PPI or whether customers have little knowledge of PPI prior to purchasing credit and only consider purchasing PPI at the point of sale of the credit product. Evidence to date shows PPI is only considered once the credit product has been selected;
  • to date the CC has found no documentary evidence that firms consider that an increase in PPI price will have a material impact on credit sales and that when planning price rises, firms generally do not consider that there will be a significant effect on their sales of PPI;
  • the evidence before the CC indicates that firms active in PPI set their prices relative to their competitors’ prices, monitor each other’s prices and check what their competitors are doing, however in no case is this with a view to undercutting competitors’ PPI offers;
  • there appears to be negligible switching of PPI (without also switching credit). The CC specifically wants to understand the main switching costs and barriers to customer switching;
  • the point of sale advantage in PPI sales appears to be very strong;
  • the CC considers the evidence before it to indicate that prices are higher than competitive levels when PPI is sold alongside a credit product. It wants to explore further the relationship between the profitability and pricing of PPI and the credit products with which it is sold.
• The extent of competition between underwriters of PPI does not appears to raise any concerns for the CC so that it does not propose to look into this area further.
• The CC does not believe that the vertically integrated companies have advantages over or disadvantages compared with independent underwriters. It regards any issues regarding foreclosure of downstream customers by vertical integration to be primarily related to the extent of downstream market power which will be considered in future work on the retail market. Therefore, the CC does not propose to undertake further analysis of vertical integration itself.

The CC is continuing to work closely with the FSA in relation to PPI.

The CC’s emerging thinking report is available here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 07/11/2007.