I've just stumbled across this article on The Motley Fool. I'm surprised at the level of profits.
"Now, here's my confession. Before becoming a Foolish writer, I worked for several PPI insurers over an eleven-year period. My career included claims and legal roles before I settled into a marketing position. So, I know the industry very well, which is the reason why I decided to write this article. From my inside experience, I'm aware of so many problems with PPI that it's hard to know where to begin!
Nevertheless, here's an explanation of why I have never bought a PPI policy - and never will.
PPI is massively over-priced
Thanks to the UK public's insatiable appetite for credit, PPI premiums have soared over the last ten years, perhaps approaching £4 billion in
2002 alone.However, only around 20% of total premiums collected is paid back to us in claims (and even less for the most expensive products). So, about 80% of the price we pay is pure profit for the lenders and insurers. This is a grossly excessive level: we pay around five times the net cost for PPI (what it costs the lenders and insurers to meet claims and admin expenses).
This over-pricing means that commissions we pay are absolutely vast. The PPI industry works hard to keep this secret from us: PPI is one of their most lucrative and profitable products. Last year alone, I would estimate that lenders and insurers shared profits from PPI of nearly £3 billion pounds!
Somewhat predictably, many of the most expensive policies are sold by the High Street banks and building societies, whose products can be up to ten times as expensive as the best-value policies. Conversely, there are a few praiseworthy online lenders that sell PPI policies at realistic prices, often at a fraction of what many mainstream lenders charge."