Payment Protection Insurance (PPI) is big business and contributes a hefty chunk to some banks' retail profits.

While we promote the importance of effective protection products, what sets alarm bells ringing at Which? is the fact that the product being most frequently offered to people is PPI. This is because PPI is frequently a bad deal and it lets down the people who need it most.

Which? has carried out research into PPI on four occasions since 2002. We have consistently found problems with many lenders automatically including the product in quotes for personal loans.

Our work has also shown that often lenders are not ensuring that PPI is suitable for the consumer purchasing the product.

PPI providers exploit the point-of-sale advantage and often fail to explain that the insurance is optional and has significant exclusions, meaning that it will not pay out to those in fixed-term employment, aged over 65 or with pre-existing medical conditions.

Other purchasers are not told that the PPI will be added to their loan or exactly how much their monthly payment will be inflated by the premium.

In an unacceptably high proportion of cases, consumers are spending hundreds of pounds for an insurance policy that would never have paid out. This is why we encourage people to seek redress if they believe they have been mis-sold PPI.

Research by the Financial Services Authority (FSA), the Office of Fair Trading and the Competition Commission backs Which?'s view that dramatic reforms to the PPI market are needed.

The FSA has penalised several firms in the past year for poor PPI sales practices, including a record £7million fine imposed on Alliance & Leicester last week.

Yet fines do nothing to compensate the thousands of consumers who may have been mis-sold policies.

When a firm is found guilty of breaching sales guidelines, all its PPI sales should be proactively reviewed and, where mis-selling has occurred, customers should be adequately compensated.

We believe that PPI's relatively low profile means that complaints represent only the tip of the iceberg of mis-sold policies. The FSA should force firms to contact their PPI customers to inform them about the problems with the market, what constitutes a legitimate sale and what to do if they think that they have been mis-sold their policy.

There should be a review focusing on single premium loan PPI, the biggest area of concern in terms of consumer detriment. Single premium policies are added to the total cost of the loan and attract interest, bumping up monthly repayments for people whose finances are often already stretched.

Furthermore, these policies often offer only five years of cover yet many loans are repaid over a much longer period, meaning that people continue to pay for PPI long after their policy has expired. The Competition Commission should ban sales of single premium PPI.

People need to take a holistic view of their finances, so that if they find themselves unable to work, their essential commitments such as their mortgage, rent and utility bills are covered. While it is more important than ever for consumers to ensure that they have financial protection, PPI in its present form is not the answer.

— Louise Hanson is the head of campaigns at Which?

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