Trouble shooting
MORTGAGE INTRODUCER - 1ST AUGUST 2007
Simon Burgess looks at why the industry should be soling problems, as well as educating, to drive better value for the end client.
Towards the end of June a couple of initiatives were announced, aimed to help consumers get best value from the payment protection insurance market. While any work targeted at improving things for consumers in this area is welcome, there also has to be an effort made to ensure the right problems are being targeted and that the work done will actually deliver genuine benefits.
The two initiatives revolved around improved training for advisers selling the insurance and a guide for consumers to help them make informed decisions when it comes to buying payment protection insurance.
There are a number of worrying issues in all of this, which we will look at in turn. First and foremost is the level of professionalism that exists in this market. Given the introduction of mandatory exams for mortgage and insurance brokers, one would like to think that they have a good understand of the products they are selling.
Firms operating in these markets have a duty of care to their customers and are acting under the auspices of the Financial Services Authority (FSA). Staff must be able and competent in what they do and undergo continuous professional development to ensure they are up to speed with the latest developments. Indeed, from a ‘Treating Customers Fairly’ perspective, it is impossible for firms to meet the expectations placed on them if their staff are not well trained and managed.
Despite this, the Association of British Insurers (ABI), in conjunction with the Financial Sector Skills Council, has launched a document outlining the standards expected of those selling payment protection insurance. To say it is simplistic would be to overstate things.
The training document outlines the learning objectives for those looking to advise in the market and suggests that training should ensure advisers know the main forms of payment protection insurance, know what is and is not covered by a policy and amongst other things understand how the claims process works and when a claim can and cannot be made.
Essentially the document is a series of bullet points stating in black and white that when it comes to payment protection insurance, advisers should know what the different products do, how they work, when they are suitable and how they fit in with various forms of credit. Surely it is a sad indictment on firms selling payment protection insurance if they own training programmes are so poor that they need a document like this to move things forward. Everything in the document relates to things that any adviser should be totally happy with a long time before they get anywhere near a claim.
If the standard of advice in the UK market has dropped so low that this type of learning aid is required then the FSA needs to step up its investigations into this area and make sure firms where advisers fall short are quickly rooted out.
Indeed the latest stage of the FSA’s investigation into the payment protection insurance market is designed just to cover these points. Over the coming weeks, the latest findings are expected form the regulator which has been carrying out work to ensure that customers are told that payment protection insurance is optional; receive clear information about the product and what it will cost; are given the assistance they need to be clear about what they are eligible for under the policy and what the exclusions are; where advice is given recommended a policy that meets their needs; and are offered a fair refund if they cancel their policy.
It will be very interesting indeed to see whether these objectives have been met and if not then hopefully the regulator will do more than refer firms to the new training document released by the ABI. Without doubt, we should be setting our sights very much higher.
However it was not only the ABI’s initiative that seemed to be wide of the mark, but also another initiative it launched in conjunction with the British Bankers Association, the council of Mortgage Lenders, the Finance and Leasing Association, and Protect the Association of Creditor Insurers,
Between them, these organisations have come up with a consumer guide to payment protection insurance. Any information that is clear, widely distributed and helps to put consumers in a better position when it comes to choosing financial products is a good thing.
This guide is no different and in using plain, understandable language and highlighting the major points for consumers to be aware of, it has an important role to play. The problem, however, is that a consumer guide is not what the market needs if it is serious about driving better value for its end clients.
Of course improving financial education is important and there is no doubt that better sales standards will help create a better market. However there has been too little attention paid to the products themselves.
The only work that has been done around the actual payment protection insurance policies has not bee strict enough to deliver the kind of value and market performance that these associations claim they are looking for.
Stephen Haddrill, director general at the ABI, said: “Insurers and lenders are determined that customers get the best possible deal from payment protection insurance.” If that genuinely were the case, then providers would be working a lot harder to make their products leaner, more flexible and less complicated.
The ABI and CML’s work on a baseline standard for mortgage payment protection insurance was a step in the right direction, but unfortunately it did not go far enough in delivering a real gold standard level of insurance and was not followed by other areas of the payment protection insurance market, which claimed that such a baseline standard was not a good idea.
The only real move in recent months has been the introduction of appropriate refunds for single premium policies. Again this ruling did not go far enough and there is no guarantee that refunds for these policies will even be made on a pro rata basis.
This is why initiatives such as the training programme and consumer information leaflet are all very well, but ultimately fall short of what is required. Products providers in the payment protection insurance market have the ability to change things for consumers virtually overnight if they really want to.
It would not be difficult to price products more competitively and bring them into line with some of the best value covers available. It would not be difficult to offer cover on a back to day one basis as a matter of course and it would not be difficult to debundle cover and allow people to choose exactly what level of insurance they needed.
The fact that there are a number of providers in the market who are already doing this, is clear evidence that it is possible and indeed profitable.
No matter how well educated consumers become and how well trained advisers are, if the vast majority of products on offer are not up to the job of delivering best value, then a significant number of consumers will continue to lose out.
If a tied agent only has one product to sell, which is inflexible and over priced, it does not matter how professionally he does his job. If the client goes ahead and makes a purchase they are still getting a raw deal and this is exactly what is happening on a daily basis across the protection market.
The worry is that the further the FSA moves from a rules based regime, the less likely it is to put done guidelines over the type of products that can be sold. Especially in a market like payment protection insurance where the products on offer should be designed as simple, low cost high value products, there is an argument that baseline standards should be in place and at a level that makes it very difficult for consumers to lose out, even where the advice they have received is below par.
There is no reason why such a move need be at the expense of principles-based regulation and it seems that in an area as wide as the financial services industry there has to be a reliance on different approaches for different areas if we are to create an environment where consumers really can expect fair treatment and good value no matter what they are buying.
Improving sales practices and consumer awareness is all very well, but not if it means we ignore some of the bigger products being sold. Let’s hope this is where the focus of the next payment protection insurance industry initiatives lies.
