Kevin Paterson is sales & marketing director at Assurant Intermediary
The past 20 years has seen a number of different protection products come onto the market. Long gone are the days when consumers could only protect their mortgage payments with life cover. The advent of critical illness, permanent health insurance and accident, sickness and unemployment cover have all broadened the options for consumers and made protection more available and affordable.
Yet despite this many consumers are not making provisions for protection or even their own savings. Research commissioned by Assurant Solutions in March this year showed that only 10% of the UK population has mortgage payment protection insurance and just 5% has income protection.
It’s no secret that the world economy is in dire straits, highlighted closer to home by the latest UK unemployment figures just released by the Office for National Statistics. The number of people out of work rose by 80,000 in the three months to July, reaching 2.51m. Despite ministerial hopes that the private sector will be able to compensate for the squeeze on the public sector, the ONS said the May to July period had seen the sharpest rise in unemployment in two years.
The number of redundancies is up 40% quarter on quarter, while vacancies are falling. According to some city commentators such as Citigroup, private sector employment is likely to weaken further as firms cut back on labour use, and firms may well cut back more quickly than in the early stages of the recession because there currently is less offsetting stimulus from new falls in interest rates.
Until a few years ago, life cover was at least a mandatory part of arranging a mortgage and MPPI has always been recommended. Whilst lenders have sought to protect themselves in the current climate through increased restrictions on mortgage availability and imposed lower income multiples etc, this does not account for how the borrower could repay the loan if their circumstances were to change.
Worryingly 40% of respondents in Assurant Solutions’ survey said that if they were unable to work due to an accident, sickness or unemployment, they would rely on government benefits to support them. The government continues to reduce state benefits and is shifting responsibility onto borrowers to be more self-sufficient but there appears to be a worrying lack of awareness or recognition by consumers of the financial risks they are running by not having some form of financial protection.
The bad publicity over the past year received by PPI has not helped. Advised to steer clear of PPI products, I’d argue that most consumers don’t discriminate between loan PPI, ASU or MPPI. It’s a confusing mix of terminology that has done our industry and consumers no favours.
The industry, Assurant Intermediary included, has shown some real innovation this past year however to reengineer protection products and make them fit for purpose. The move to underwriting ASU at the point of sale has been a significant step forward meaning that consumers can now buy MPPI and Income Protection that works. Being underwritten at the point of sale means the policy accurately reflects their needs and as a result claims are less likely to be declined.
The challenge now is in educating consumers and making them aware of the products available, and this is where the broker’s role is paramount.
And let’s not forget that it's not just the borrower that is protected by ASU. If the borrower can afford to service his mortgage and maintain insurance premiums, the lender's costs will be reduced and brokers' commission will also be protected.
Given the state of the economy it is now more important than ever for brokers to discuss insurance protection options with their customers and explain the dangers of playing Russian Roulette with their finances.
