The Competition Commission’s investigation found that the majority of payment protection insurance sales are made at the time of purchase, when a customer takes out a loan, credit card or other type of credit, which they said is detrimental to the consumer because it does not allow them time to compare products and find a better deal.

There is no competition, the Competition Commission said, if the cover is sold with the product, and it also encourages the mis-selling of PPI.

The Financial Services Authority has recently unveiled several instances of mis-sold payment protection insurance, where companies were pressuring customers into taking out the cover or selling them policies which were unsuitable.

Therefore, the Competition Commission has said that PPI will no longer be sold at the time of purchase, nor for the following seven days, on order to give customers a chance to shop around and consider whether or not they want the cover.

Distributors of payment protection insurance will have to give customers a personalised PPI quote, which clearly states the cost of the cover.

The Competition Commission will be introducing a new package of measures aimed at making PPI clearer for the consumer – such as annual statements, and improved availability of information so that the customer can easily compare and switch policies at a later date.

Companies will also no longer be allowed to sell single premium policies, whereby the cost of the insurance is added onto the total loan taken out in one lump sum, which therefore accrues interest along with the rest of the debt, and locks the customer into the policy.

The report revealed that many consumers are uninformed when they are sold PPI – they are unaware that PPI is available from other providers, or that they can shop around to get a better premium, and rarely switch providers once they have taken out the cover.

Peter Davis, Inquiry Chairman and CC Deputy Chairman, said that the ‘point-of-sale’ advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices.

“Consumers’ interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product.” he said.

“The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect.”

Mr Davis recognises that the current economic climate means that there may be a greater need for PPI than at other times, but, he says, this also means that it is more important than ever to ensure consumers are getting the best value for money that they can.

But the Association of British Insurers (ABI) thinks that the Competition Commission has underestimated the importance of PPI to the consumer at this time, and “ignored the worsening economic climate to the detriment of the consumer”.

Nick Starling, the ABI’s director of general insurance and health at the ABI, said that While the ABI “supports any measures that help people make an informed choice”, he believes that “the point of sale ban carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more.”

© Fair Investment Company Ltd