23rd August 2013
Investigative journalist Tony Levene, looks at the card protection policy universe.
The Financial Conduct Authority (FCA) has reached an agreement with Card Protection Plan (CPP) , 13 high street banks and credit card issuers that they should pay some £1.3bn in compensation to customers who were mis-sold CPP’s Card Protection and Identity Protection policies.
That’s virtually all the seven million individuals who between them bought around 23m policies. Most of the cost will be borne by the banks led by Barclays as they kept large slices of each premium – 60 per cent and sometimes more for policies whose payout costs at around two per cent of each premium pound make PPI look good value.
There was little surprise in this. CPP policies have been under fire for years as they largely offer protection which banks and card companies have to provide free of charge. The first regulatory action against CPP was made public over two years ago and there have been updates and a fine (last November) ever since. The action started just months after its 2010 stock market flotation, and since the watchdogs became involved in spring 2011, the share price has slumped from 320p to a current 15p.
The bank payouts were expected as well. The share price at Barclays, which will have the biggest bill as it is the biggest card company, was unaffected.
Card protection policies have always been controversial. Some 20 years ago, a CPP rival issued a press release on the eve of Wimbledon fortnight claiming the event was the worst sporting occasion for card theft.
Many newspapers printed it word for word. But I looked at the figures more closely. Was it right to compare an event over a fortnight with the FA Cup Final (one day) or Ascot (four days)? And how had these problems been defined?
A phone call to Wimbledon police station clarified matters. The card protector had compared all card theft for two weeks across a large swathe of south west London with the immediate vicinity of Wembley for an afternoon. Wimbledon police were furious. “It’s a low problem event which has been turned into a major crime problem. The tennis is just a bit of crowd control,” I was told.
Whatever the reality, creating fear worked. Millions of policies were sold from both CPP and rival Sentinel.
CPP has one remaining UK competitor. Sentinel, which is owned by Affinion Group, which in turn is held by private equity groups Apollo Management and General Atlantic Partners. According to the Affinion website, Sentinel has five million UK customers.
It offers individuals a policy including card registration, loss reporting and replacement service, insurance for fraudulent card use, lost or stolen cash and replacement wallet, briefcase and handbag, luggage and key retrieval services, covering an unlimited number of household members.
For partners – card issuers and banks (including LloydsTSB) it promises:
“Our way of working is very simple and transparent. Our track record and genuine expertise means we are able to offer you a substantial commission and manage the whole programme in a way which does not impact the usual operation of your business. Our clear goal is to build your brand in a profitable way so as to deliver a revenue stream to both our businesses. All communications to customers are from your brand; they have a relationship with you and not with us. Guidelines and standards are always agreed and signed off. The same goes for any telephone or online contact; we have a contact team of over 600 skilled agents. If required we can also help you to use your own customer touchpoints to drive cross-sell and up-sell opportunities.
“Our greatest area of expertise, alongside innovative product development, is in marketing. By using our wealth of experience and powerful data models, we are able to select those customers on your file who are most likely to take up the Sentinel® Card Protection proposition and engage them with the best range of benefits available. Our response rates and upsell rates are best in class, ensuring both our businesses a substantial and ongoing revenue stream.”
It is clear why banks have sold plans from card protectors. It produces a stream of additional money from consumers.
Whether banks know that it will end in compensatory tears is unclear. Some may buy the “must have” insurance story. Some don’t care as long as there is a cash flow. But others may know and take the gamble. Although the refund potential is large, there is a good case for banks taking a chance. The policies might not be rumbled as mis-sold. Or even if they are, there’s a good possibility that some of the money will stick with them as no compensation scheme has yet achieved total payout coverage or anywhere near that.