PPI Losses Hit Lloyds Bank Bonuses

Lloyds Banking Group, the owns of Lloyds TSB and Halifax Bank of Scotland has stripped its directors of £2 million of bonuses due to the banks losses on payment protection insurance or PPI. The losses have been incurred after Lloyds posted a £3.2 billion provision in their accounts for the costs of mis-selling payment protection insurance. In the case of Lloyds boss Eric Daniels, the bonus loss is worth £580,000.

Payment protection insurance was a big money spinner for the arrangers of loans and mortgages. However, many of the policies were shown to be useless as they were sold to people with non-qualifying occupations such as the self-employed. The problem for the banks was that they had incentivised their sales staff with commission rates. The larger the loan, the higher the commission. This made mortgage payment protection insurance (MPPI) particularly attractive.

Mortgage Payment Protection Insurance

I have always been fascinated by the average consumers obsession with insurance. Its a massive industry. People buy insurance to cover all types of risk. Some insurance cover is a legal requirement, e.g. motor insurance. Other insurance is a contractual requirement e.g. buildings insurance when you have a mortgage.

Mortgage payment protection is another entirely. It seems to me that people would only take this out if they felt there employment was vulnerable. Secondly, from experience MPPI comes with so many exclusions many people find that their cover does not extend to the circumstances that have brought about their loss of employment. People excluded include the self-employed, people aware of a redundancy risk and people who work abroad.

Despite this MPPI remains popular and the market is increasingly competitive.