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Barclays' insurance hideaway
Dublin move avoided scrutiny of tactics in selling lucrative loan protection
• Phillip Inman
• The Guardian, Monday March 8 2004
• Article history
Barclays Bank shifted its personal loan and Barclaycard insurance operation to Dublin primarily to try to avoid disclosing the huge profits it was making from this controversial business, according to documents seen by the Guardian.
The insurance business, known as payment protection insurance, has contributed about a quarter of Barclays' personal finance profits and about 10% of the bank's overall profits during recent years. It was moved from Woolwich to Dublin in 1998 with the creation of Barclays Insurance Dublin - a new division which the bank has described internally as a "response to disclosure threat".
The move also reduced Barclays' tax bill by taking advantage of Dublin's special 10% rate for financial services com panies. On Saturday, the Guardian published details of how Barclays was enjoying profit margins of 70% selling PPI policies to more than 2 million customers with Barclayloans, Barclaycard and Woolwich mortgages. About two-thirds of customers take out the insurance to make sure they can keep up monthly payments on their credit cards, loans and mortgages when they are made redundant or fall sick.
In 2000-01 the bank made £240m profit on a turnover of £350m from the Dublin-based business.
Rival banks are thought to make similarly high profits selling these policies, the costs for which are routinely bundled into repayment quotations offered to borrowers. About 15m people in Britain are believed to have such insurance.
Separate documents reveal that the bank knew it faced a public relations disaster if the scale of profits from these policies became public. It sponsored a secretive public relations operation, under the codename Protect, to rebut claims that it had been making excessive profits.
Members of this little-known trade association met informally at golf clubs and hotels to discuss how they would respond to inquiries by the press and regulators. One briefing note observes that Protect members will have considerable experience of countering bad press and should share lessons learned with other members, so as to benefit the industry.
According to the documents, Barclays was specifically worried that what it termed "commercially sensitive" information was in fact publicly available in Ireland through the Blue Book - an annual European Central Bank publication covering the financial services industry. If challenged on "excessive" profits, officials were instructed to explain that profits from PPI were subject to underwriting cycles, with short-term profits needing to be offset against the cost of claims in bad times.
Last year the consumer panel of the main City regulator, the Financial Services Authority, highlighted mis-selling of payment protection policies as a cause for concern. However, the FSA is not due to take formal responsibility for the regulation of general insurance business until next year.
At present, sales of such policies are simply covered by a series of industry codes.
Ed Mayo, chief executive of the National Consumer Council, said the news should prompt further investigation by the government. "This is a scandal which lifts the lid on how banks put pursuit of profit before customer service. Barclays are preying on the fears of their customers, because, of course, if you lose your job you can't keep up the same level of payments for long. The NCC is writing to the FSA to ensure that when it takes over regulation of general insurance next year it monitors and enforces the strict rules on selling thoroughly and effectively."
A spokeswoman for Barclays maintained that the bank's policies offered good value. She denied that the payment protection business accounted for 10% of profit in the last financial year.
In response to criticism from consumer groups, she said customers were given information on the separate cost of loans and payment protection insurance "at the most appropriate time" when documents were sent to their homes to sign.
"We feel that having it in writing allows the customer to see clearly, and at their own leisure, the different elements of the loan as well as the summary of what the PPI covers. Any initial quotes are therefore only an indicator of price and we always offer the customer a more detailed follow up before they decide to purchase."