Where are the Benefits?

The days of easy money for CCP Group, and its partner banks, are over.

The Financial Services Authority seems to be getting ready to impose some of its stiffest penalties yet for insurance misselling on York-based CPP Group. In response, CPP says it could go bust within weeks. It is now valued at just £176 million, well below its peak of £561m in February 2011.

According to its website, CPP is an “international life assistance business”. It has more than 11 million customers worldwide who buy services such as card protection services. For just £36.99 a year, CPP will take the trouble off your hands and notify each of your card issuers if you lose your cards. Protection includes insurance to replace your locks if you lose your keys, insurance for things which might not be covered by your card company, as well as a cash advance of up to £5000 if you lose your cards.

The FSA is threatening to make CPP repay customers hundreds of millions of pounds, back dated to 2005. It also, says that the company must stop its automatic renewals policy, so that consumers can decide each year if they really need cover. You can see why this is worrying for the company: 70 per cent of its revenues come from renewals, with more than 50 per cent coming from UK customers alone.

Paul Stobart, CEO, said it would be “massively financially damaging to the company”, warning, “the risk is the whole business will be brought down.”

The problem is that CPP may not have been clear enough about what protection customers already had. The question being asked is if, in fact, people really needed these services at all.

Interestingly, in the light of other misselling concerns in the banking industry, almost all of CPP’s customers have been referred to it by banks, who take about a third of the selling price in commissions. No wonder then that CPP revenue has risen at a compound rate of 14 per cent since 2005. What has been good for CPP has been very good for the banks too.

Here we have another symbiotic business relationship that provides competitive advantage on one side and easy money on the other. It is not unique. As it becomes clearer what little value such products offer, particularly in a time of economic stress such as we face today, customers may now reconsider. I would expect that many customers would “pass” when it comes to the next renewal date, if they are asked.

CPP’s website says it has “a clearly defined strategy for delivering continued growth”. Well, that strategy, of a highly incentivised single channel to market and automatic renewals, seems to be falling apart.

Isn’t it interesting that a business offering such doubtful benefits could have grown so large, primarily because it had preferential access to us all, via our once trusted banks?

Mark

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