It is somewhat ironic that at the very time members of the public need and are crying out for protection insurance, we have seen some product providers withdraw partially, or totally, from the market. This is particularly the case in the mortgage payment protection insurance (MPPI) sector and especially when it comes to offering unemployment only insurance.
That in itself is not very surprising. You don’t have to be Mystic Meg to see that claims are set to rocket as the recession deepens and more and more workers are laid off.
Latest figures from analyst Datamonitor reveals a serious contraction in total payment protection insurance gross written premiums. According to figures published in its market report UK Creditor Insurance 2008, it shrunk by £4 billion in GWP in 2007, a decrease of 12.4 per cent since 2006. At the same time the personal loan PPI market contracted markedly as penetration rates and gross advances on personal loans fell. New legislative changes around point of sale advantage seem set to further slow sales of these insurances for lenders.
Time for reassessment
Now might be a good time to take a step back and look at the wider picture and reassess the product and how we go about selling it to the public.
There is no doubt that there is a market need for good value payment protection policies. Indeed the government is very eager for the numbers of MPPI policyholders to markedly increase.
At the same time there is no one better positioned to impress upon the general public the necessity of holding relevant cover than the mortgage broker. The adviser has the benefit of being right in front of the client where the product can be actively ‘sold’.
New rules preventing lenders from completing sales of PPI until seven days after the sale of the underlying credit product mean the market is set to become more competitive as new products come on stream and customers are encouraged to shop around for cover. Lenders will certainly have to work much harder to achieve anything like the market share that they have been used to.
This will lead to product innovations that are much more tailored to customers’ requirements. Crucially brokers, that have traditionally struggled to access the market as lenders locked in their clients when the home loan was agreed, will now become a vital cog in delivering sales. Nowhere more so than when it comes to selling MPPI.
According to the Council of Mortgage Lenders, banks and building societies continue to dominate the distribution landscape of MPPI, with 73 per cent of polices being sold through this channel. Intermediaries, such as mortgage brokers, constituted the second largest distribution channel for MPPI, with 26 per cent of policies being sold through this channel while only 1 per cent was sold via the direct channel, which includes dedicated insurance brokers as well as direct insurers. This reflects the fact that most MPPI is sold at the point of sale, with many consumers unlikely to seek MPPI from standalone providers or direct players. We can now expect to see this situation change with a swing to brokers and the direct channel.
But brokers need an attractive product to sell to clients. I predict that the provider sector will soon have new offerings that reflect the increasingly complicated world in which we all operate yet are more simplistic and all-encompassing in the cover they provide.
Such an approach will appeal both to intermediaries and their clients. But it is important that brokers make the availability of this type of insurance apparent to their clients and recommend, following an enquiry into their circumstances, that they take it out where appropriate.
We have seen with the recent successful challenge to the financial ombudsman by a repossessed householder that omitting to cover all scenarios and faling to keep a detailed record could have serious consequences.
This former housing association tenant was persuaded to buy his property. However he successfully claimed that he was not told what would happen in the event of the attractive discount rate ending on his mortgage and him being unable to afford the new rate, which did occur.
It was decided that Mortgage Conduct of Business rules were breached and as such an action could be brought by the person suffering a financial loss. It is a short step from this to a client successfully claiming that he was not told by his broker that he could insure against being unable to make his mortgage repayments when he fell ill, or was made redundant.
Our intermediary base is the key to the success of this approach. We believe by giving them a more rounded product that will fit many circumstances we are making the job of selling the policy much simpler as they will only need to turn to one product to cover most client eventuality.
Innovation is key
We all must recognise that innovation is the key to driving value for distributors and customers alike and it is crucial if the wider PPI sector is to move evolve. But success also means working together as a team and brokers should be looking to identify insurer partners that are committed to the market.
We have not been immune to the pressures of the market at Paymentshield. We had to make changes to our MortgageProtector product when our underwriters Norwich Union came to the conclusion that it would not be cost effective to offer stand alone MPPI for the foreseeable future. Consequently we were restricted to offering the product only to those clients taking out a new mortgage or remortgage.
It was quite proper for NU to put these controls in place in order to protect their book of business from serious deterioration that would occur should claims rise to the level they expect.
However, we felt that we have a duty of care to our broker base and ultimately to their clients in being able to supply good products with extensive cover at the right price. We know there is public demand for these products and we went back to the market to source a provider willing to underwrite the wider business that we wanted to offer.
I am delighted that Cardiff Pinnacle has agreed to support us and we can now provide standalone MPPI to all customers.
It means brokers can once again offer this valuable cover to anyone seeking to protect their income should their circumstances change due to accident, sickness or unemployment. We will continue to offer MPPI to new borrowers or remortgages through our existing arrangement with NU.
This is a sign of our commitment to the market and to our brokers. We are totally committed to the intermediary sector and to this end have been developing close ties with networks and sending out our field sales team to visit individual brokerages up and down the country.
The great turnout and feedback that we received at our road shows last year demonstrated to us that brokers want to sell our products and recognise that they need to bring added value to their client relationships. As we understand that we need to develop products that reflect the needs of customers, so brokers now realise that their client relationship must now mean more than selling them a mortgage and forgetting about them until it’s time to remortgage.
If anything good is to come out of this financial shock it may be that all of us in the industry come to understand that we need to pull together when times are tough and that we are all interdependent. It is our job to develop the best products that we can; it is the intermediary’s job to advise their customers as to the best products for their needs. This simple message sometimes got lost in the frothy years when the cash just seemed to roll in without having to do a great deal for it. Now’s the time for refocusing, concentrating on where our strengths lie and building rewarding business relationships.