The majority of retailers understand that PPI is a lucrative addition to the add-ons with car sales.

The sector is estimated to be worth around £5.5 billion with about seven million policies sold each year.

The OFT has published its analysis of the market and has referred the PPI market to the Competition Commission.

PPI has a low claims ratio compared to other insurance (estimated at 15-20% compared to 74% for motor insurance), but commission rates look to be high in comparison to other general insurance products.

The OFT also noted that there were considerable price variations but without commensurate differences in cover. This too leads to the conclusion for the OFT that the market is not working as well for the consumer as it should.

A decision by the Competition Commission is anticipated early next year.