The earliest form of insurance strategies were used by Chinese traders in the 3rd millennium. Rather than putting all of their merchandise onto one ship made vulnerable on the high seas by the threat of theft or destruction, they spread out their products, hedging their bets. If one ship capsized or was plundered by pirates, the remaining merchandise reached the destination, possibly saving the owner from ruin.

This historic example of “insuring” goods makes a great risk analysis model because it gets to the essence of what the concept of insurance is all about: Think ahead, posit worst-case scenarios, estimate loss and then put into place measures to indemnify against myriad possibilities.

Todays insurance policies covering goods and services are a bit more complex than they were when the UK insurance industry evolved from. To accommodate today’s lifestyle, the insurance industry came up with a concept ideally suited to today’s consumer: personal protection insurance (PPI). But with this insurance concept came risks nobody anticipated.

PPI Insurance: An Overview

If asked to name the most inventive types of insurance currently available in the marketplace, many people would choose PPI because it’s practical, useful and conforms to everyday circumstances. Offered to the public at large to serve as a financial cushion so anyone can keep up loan or credit card payments in the event illness, redundancy, accident or death short-circuits one’s cash flow, the PPI concept is revolutionary, cutting edge and at first, it was a boon to the UK insurance industry seeking fresh product ideas meeting contemporary consumer spending propensities.

But, by 2011, this type of coverage began to make more bad news than good, despite the fact, according to UK websites, that PPI compensation was as popular as Kate Middleton– with over 85-percent of the public successfully pursuing claims to settlement–a darker side of PPI began to emerge as British banks became embroiled in a growing mis-sold insurance debacle. This was unfortunate since, on average, loan PPI compensation of £3,000 was settled upon satisfied PPI policy holders, but that honeymoon wasn’t to last.

 

Mis-Sold PPI: Becomes a National Problem

Despite legitimate PPI sales, every strata of the British population has been touched by controversy surrounding mis-sold PPI policies. If you’re among that number, you may have fallen victim to a clever salesperson or banker who “sold” you on the idea of this coverage by alarming you that if you didn’t buy it, your chances of getting a mortgage or another type of loan could be lessened. Perhaps you found yourself stuck with a policy that neither paid out cash compensation nor made good on settlement promises because you were sold a PPI under another name like “loan care,” “loan protection,” “payment cover,” “protection plan” or ASU.

How did this become an epidemic? UK banks took advantage of this clever insurance and systematically exploited the public for years, leading to a declaration by the British Bankers Association in 2011 that they would pay back claims after a high court judicial review found the banking system at fault.

Were your situation a simple one—you bought a bad PPI policy, realized you made a mistake—maybe lost your documentation—you could file a claim for compensation by first contacting the business that duped you via a letter stating your case. The standard form requires you to do little innovating since the proper boilerplate language is steeped in legalities. Include documents to substantiate your claim of mis-sold PPI and see what happens. If eight weeks or so pass and you’ve had no response, time to call in the Financial Ombudsman Service (FOS) to advocate on your behalf. Simple enough?

It is—unless you’re also undertaking bankruptcy.

 

PPI Compensation in Bankruptcy

So what is your PPI compensation recourse if you’ve filed for bankruptcy? First, whether you have been discharged from bankruptcy or you are currently sequestrated,  the reality that the compensation that you are applying for, from a mis-sold PPI case is not yours to claim. A settlement becomes, part and parcel, “an asset” that, if collected, is treated in the same manner as any asset belonging to your bankruptcy action. According to the Insolvency Service, even a PPI mis-sold before filing for bankruptcy is legally owned by the Official Receiver or a bankruptcy estate trustee charged with responsibility for the disposition of your case, so you’ve no recourse but to accept facts and move on.

If you think of PPI compensation as you would jewelry, cars or real estate, it can make clearer the relationship between your rights as a bankrupt claimant and any monies collected as compensation for mis-sold PPI policies. The moment you elected to sign up for a PPI, that policy becomes an asset and is subject to “right of action” rules and regulations that affect everything but the basic living items UK bankruptcy exempts from collection. This can seem heartless and unfair, but trustees have a right to pursue all manner of property liquidation on behalf of creditors once bankruptcy is undertaken by an individual.

While you are bankrupt, any windfalls or payments you receive must be paid into your bankruptcy estate for the benefit of your creditors. This means that if you successfully claim for mis-sold PPI and are awarded a refund while you are bankrupt, this money must be paid in full to your creditors.

Is it worth Claiming PPI if Bankrupt?

I guess the answer lies with you and how you feel about repaying your debt, as explained earlier, the compensation received would go to the official receivers.

From our perspective, Banks knowingly mis-sold PPI for many years which contributed to the current financial mess the country and business faces. If you were mis-sold, then it is your right to claim PPI compensation. If this helps to reduce your debts owed to creditors, then that can only be a good decision.

 


Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim


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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.