The decision to carry out the study follows a 'super complaint' from Citizens Advice (CitA) that PPI was too expensive and was often sold to people who did not require it.
PPI is designed to help people repay personal loan, store or credit card debts if they become ill, suffer an accident or are made redundant. As many as 7.5 million policies are taken out each year with an estimated £5.4 billion in premiums generated in 2003.
John Fingleton, OFT Chief Executive, said 'PPI is a complex product, often bought almost as an afterthought. Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean that they are less likely to shop around for PPI. There is a high potential for consumer detriment – our study will look at whether consumers are getting a good deal or not.'
Citizens Advice made the complaint in September 2005, saying that PPI offered by mainstream lenders is excessively expensive, often excluded cover for common problems such as bad backs and mental illness. Furthermore, many policies also had arbitrary age limits and excluded people people who are self employed or employed on fixed term contracts from making a claim. When claims are made, Citizens Advice believes the administration of claims is often be slow and unfair.