Safeguard the future
MORTGAGE SOLUTIONS - 26TH MARCH 2007
Protecting your largest asset the home seems logical, but recent bad press could make mortgage payment protection insurance extinct as a product, argues Simon Burgess, managing director of Britishinsurance.com.
Some things were just made for each other. Think of food, and wonderful combinations spring to mind, like ham and egg, cheese and tomato, or strawberries and cream. Just thinking about them makes our palates salivate and triggers memories of the smells, colours, tastes and textures they carry.
While great together, the fact that all of these foods stand up in their own right is a sign of their greatness as single ingredients. Yes, they work well with other things, but even on their own, they are fantastic.
Just because we associate one thing with another, it does not mean they always have to come together, or indeed that they should always be put together. Often by separating two things, we get to enjoy the individual characteristics of each and appreciate them better as a single entity.
In the past, mortgage payment protection insurance has always gone hand in hand with the mortgage it protects. Borrowers put finance in place for their new home and then take out insurance to protect the most important asset they own. Why speak to someone else, when the mortgage provider or broker can sort out the insurance? Two birds killed with the one stone, and the borrower leaves a happy man.
Changing buying habits
Well, perhaps not quite so happy, now borrowers are becoming increasingly aware that the insurance offered at the point of sale does not tend to represent the best value in the market and that better deals are available. The question, therefore is not so much of splitting up mortgages and mortgage payment protection insurance, but of getting borrowers to realise they do not have to come together in the same package and changed their buying habits accordingly.
Intermediaries wishing to offer their clients the very best of mortgage payment protection insurance also face problems accessing independent alternative products. Certainly, it is more awkward than simply ticking the mortgage payment protection insurance box on the mortgage application.
Many have questioned why mortgage payment protection insurance has not taken to the internet. It would seem the logical marketplace for the product and would solve many of the accessibility problems. However according to a report in January from Defaqto, Individual PMI 2007 Dead Duck or Sleeping Giant?, the internet has not yet taken off as a sales channel. Online information is available for 73% of mortgage payment protection insurance policies and online quotes can be given for 36% of policies. For terms and conditions, online availability falls to 28% of all policies, while only 27% of policies can be purchased online.
Freedom of information
While there is a fair amount of basic information available online for mortgage payment protection insurance, those wishing to take things further are left by many providers with nowhere to go. It is also worrying to see that so few are up-front with their terms and conditions, and as the Defaqto report states: Even with FSA regulation, considerably more providers offer quotes and purchase online than are prepared to show customers the policy terms. This is despite Insurance Conduct of Business (ICOB) rules that require that a customer should be able to review the policy terms prior to purchase.
In terms of product design, there are things that could be done to make mortgage payment protection insurance friendlier to the online environment. Consistency could be introduced to the terminology used, the basic terms offered and the excesses and exclusions in place. This would help consumers compare products and force providers to price more competitively.
However, the biggest problem is consumer apathy. Car insurance, for example, has become such a huge online market because it is mandatory. The struggle for the mortgage payment protection insurance market is to be relevant and attractive to consumers, and given the ongoing criticism of the payment protection insurance market, this has been difficult.
Indeed, taken in conjunction with low interest rates and high employment figures, the trading climate for mortgage payment protection insurance has been difficult in recent years. However, the truth is that we are not doing enough to promote the insurance as a standalone product that has its own merits and is not simply an accompaniment to the mortgage.
Only by making borrowers really consider their financial situation will providers and intermediaries begin to persuade clients of the importance of closing the gaps that exist in their financial protection. This will always be difficult, but as changes are brought to bear by the investigations and research being conducted by legislators and regulators, we may see everything slowly come together for the online market.
Better product design, a more competitive environment and clearer terms and conditions will all help. In the first instance, there is no doubt that borrowers need to feel that mortgage payment protection insurance will readily pay out when needed, there are no awkward clauses hidden in the small print and that it represents good value.
However, there can be no escaping the huge effort we must all put behind marketing mortgage payment protection insurance as a standalone insurance that fulfils a very important role. While at the peak of the economic cycle, the industry needs to get the message across that mortgage payment protection insurance is not an unaffordable luxury, but necessary protection for many borrowers. By showing borrowers the merits of mortgage payment protection insurance, brokers will hopefully begin to seek out the best that is available, rather than make do with what comes with tem mortgage.
If we are unable to get the message across, then the take-up of mortgage payment protection insurance will continue to slide and at its current rates of demise, Defaqto claims that only 15% of mortgages will be protected by the first half of 2009.
