The British Competition Commission investigated the profitability of payment protection insurance policies in 2008 and discovered that insurers incurred claim liability of just £15 for every £100 premium collected from customers. On the other hand, insurers pay an average sum of £78 and £54 for every £100 premium collected on a car insurance and home insurance policy respectively. An individual going in for a €10,000 will pay €2,000 extra over the tenure of the loan. The cost of going in for PPI on a credit card works out to 8.5 per cent of the monthly outstanding. The cost of PPI on a 30-year mortgage works out to 4.75% of the outstanding amount. The borrower will end up paying a sum in excess of €20,000 over a span of 30 years.
Banks and financial institutions have handled bulk of the PPI policies circulating in the market and this is the reason why the Central Bank is focusing on such institutions. 340,000 policies were sold over a span of fifty months starting from August 2007 and 80% of these sales took place through banks and lenders. Not surprisingly, AIB and Bank of Ireland have started refunding millions of Euros to victims of mis-sold PPI policies ever since the Central Bank started investigating the issue. The Central Bank has discovered instances where persons not eligible for coverage were encouraged to purchase the PPI policy. An unemployed individual was asked to buy this policy despite the fact that PPI does not protect individuals who were unemployed at the time of purchase of a policy. An individual working 16 hours a week was asked to buy this policy when the policy covers only those individuals who were working at least 18 hours a week.
Those working outside the country were asked to purchase this policy despite the fact that PPI protects only those who work in Ireland. Instances where buyers were sold PPI by individuals who did not know what PPI was all about are also being considered by the Central Bank for refunds or intervention. In all such cases, the Central Bank is stepping in and insisting that the insurers should either refund the money or process the claims.