Brokers losing out on payment protection insurance as lenders profit
HEALTH CARE INSURANCE REPORT - 1ST JUNE 2005
Brokers could be missing out on up to £5 billion commissions a year on payment protection insurance by leaving the market to high street lenders such as banks and building societies according to Simon Burgess, managing director of Burgesses.
launching a new online accident, sickness and unemployment insurance facility in conjunction with broker body BIBA, Simon Burgess has also pointed out that brokers can undercut such lenders not just on price but also on the fact that their products are portable and many include back to day one cover, whereas lenders’ products often have an initial waiting period of up to 60 days.
Burgesses’ says that an average mortgage would cost £14.70 a month to protect with its mortgage payment protection insurance plan, compared to an average of £35.27 with the top 10 lenders.
Graham Trudghill, technical service manager at BIBA said: “It is not uncommon for mortgage lenders to take in excess of 80% of a client’s premium in commission. This is an excessive amount of remuneration and is unrealistic in today’s terms.”
Recent research from Morgan Stanley Equity Research shows that banks derive much of their profit from payment protection insurance sales.
Some 25 million payment protection insurance policies are believed to be in force and the FSA is now looking into how the product is sold (but not, at whether commissions paid are reasonable).
The FSA’s attentions may be putting some broker off the market. But Chris Cummings, director of the Association of Mortgage Intermediaries has advised its members not to be put off, although they should consider all options and not simply recommend payment protection insurance without considering the customer’s circumstances and other options – including income protection – that may be available. He added: “Protection is definitely sold, whereas mortgages are bought. In a mortgage market that is definitely slowing down, advisers should not turn their back on a potentially important revenue stream.”
