It’s become a poorly kept secret that the loan insurance business is little short of a licence to print money – some £5 billion a year of it, in fact. That is the value of the 20 million or so loan insurance policies that are sold each year.

With numbers as huge as these, it is little surprise that most of us have contributed in one way or another to the money-making machine that has been payment protection insurance. So, how have we fallen for it in quite such a spectacular fashion?

As the £5 billion figure might suggest, there is a considerable fortune to be made from the opportunity for anyone selling a loan or a credit card also to sell loan protection and payment protection insurance alongside it. And this is precisely what the high lenders – big name banks and building societies – have been doing. They have been exploiting the captive market of customers looking to buy credit and profiteering from the opportunity to sell high-priced insurance at the same time.

As if the over-inflated prices charged for such loan insurance was not bad enough, the lenders have been less than scrupulously honest in the way these products have been marketed. As a result, industry regulators, both the Office of Fair Trading and the Competition Commission, are in the middle of a rigorous investigation of the now evidently widespread mis-selling of loan insurance.

During the course of these investigations, an even bleaker picture has emerged as it has become apparent that loan insurance has been so blatantly mis-sold that only about one in five of all claims are currently accepted as valid and paid out.

This sorry tale of unfair trading results in far more than just bad press. It runs the risk of turning buyers against an insurance product that is, in fact, a useful and prudent addition to any consumer’s domestic finances. As Simon Burgess, of independent insurance providers, British Insurance, puts it: “What a tragedy that a product as useful and valuable as loan insurance has been given such a bad name by the sheer greed of the monopoly lenders. It’s not before time that the Competition Commission has started taking them to task and restoring some sanity to the marketing of this insurance”.