Too little, too late
MORTGAGE FINANCE GAZETTE - 1ST MARCH 2007
Simon Burgess believes that mortgage payment protection insurance sector has only itself to blame for being referred to the Competition Commission.
Prevention is better than cure, yet getting people to take preventive action often proves incredibly difficult. Millions of people still smoke despite the risks, getting drivers to wear seatbelts proved a struggle and many still think that exercise and healthy eating are something other people should do.
Whether we believe we will avoid the inherent risks our actions carry or are simply too busy enjoying the perceived pleasures and freedoms they give us in the moment is difficult to tell, but at the end of the day many of us will be left settling up on a score we can ill afford.
Certainly this is true in the mortgage market where mortgage payment protection insurance providers and distributors have failed to take the chances offered to them to prevent sanctioning in the months and years to come.
Rather than accept that there were a number of problems in the market and take action to prevent clients being ill advised or mis-sold to, too many have sat back and believed their actions will not catch up with them.
In many cases this might well be the case, and there will not doubt be firms that have generated massive profits on the back of inappropriate sales without ever being sanctioned for their behaviour. However some firms will be held to account, and the penalties will be severe.
As far back as December 2005, the Financial Services Authority (FSA) was calling upon the payment protection insurance sector generally to make changes to the way it operated and the products it sold, and trade bodies were called upon to bring forth possible solutions for the future.
Mortgage payment protection insurance
Although not given a glowing report, the mortgage payment protection insurance sector was held up as being ahead of the rest and should have taken the opportunity to distinguish itself and its activities form the rest of the payment protection insurance market as far as possible. However, this was not done and despite apparent on-going dialogue between the FSA and bodies such as the Association of Mortgage Intermediaries (AMI) and the Council of Mortgage Lenders (CML) there was little practical change brought to bear on the market.
Indeed, by failing to make effective representation to the FSA and drive change among member firms, the CML and AMI have a degree of blame to bear now that the market has been officially referred to the Competition Commission.
Both of these bodies knew the Office of Fair Trading would be looking at the market and the implications if it was unable to impress. However, despite being aware of problems, AMI and CML members conspired to do little if anything of practical importance to improve the design, sales and claims processes they had in place. For the CML and AMI then to complain it was unfair for the mortgage payment protection insurance sector to be lumped in with the rest of the protection industry when it came to the Competition Commission’s review is ridiculous.
Winners and losers
Given the ongoing review into the market by the FSA and the work to be done by the Competition Commission, there seems little doubt that the strong point-of-sale position held by many of the high street brands will be dissolved.
Clearly they will not lose all their influence, but in a market where consumer education is highlighting the benefits that standalone products can offer and where technology is making it easier to access these independent products, a new approach is definitely required.
Whether brokers look increasingly to independent providers or get underwriters to design specific products to meet their needs remains to be seen, but relying on the old favourites of the past is unlikely to attract many sales and will certainly leave much to be desired in terms of regulator considerations, given how rarely these products constitute best advice.
Past sales
Underwriters and distributors of mortgage payment protection insurance really need to look at where they have been criticised in the past and actually address the problems rather than ignoring them. Not only will those failing to do so be sanctioned in the months ahead, but they will also be forced to retrace their steps over previous sales and highlight cases where clients have been unfairly treated and redress the situation where appropriate.
This could prove a timely and costly exercise, and surely lenders and intermediaries who have sold mortgage payment protection insurance in the past must begin to take stock of their position and realign themselves for the future.
At a basic level, providers must ensure their products are fit for purpose and intermediaries must ensure their dealings with clients constitute best practice. Many firms in the market know this is not the case with their own operations, and even where safeguards and processes are in place to guard against client detriment, the FSA has found they are often poorly policed and practised.
Mortgage payment protection insurance in particular has the ability to turn itself around and offer sustainable sales to providers an excellent cover to clients’ whether it chooses to do this off its own back or wait for legislators to force the market down this road remains to be seen. However, for those prepared to make changes there are opportunities available.
