The Mortgage Payment Protection Insurance (MPPI) market has been under the microscope this last year. A Government sponsored review is expected in the first quarter of next year, and there has been an ongoing initiative between the Association of British Insurers (ABI), The Council of Mortgage Lenders (CML) and the Government’s own Sustainable Home Ownership programme. The initiative has been looking at the provision and effectiveness of the protection products on the market, and how greater protection can be afforded to borrowers and lenders alike.
Much criticism has been levelled at MPPI, and issues over pricing, product quality and value have kept discussions raging.
Professor Roger Burrows of the University of York’s Centre for Housing Policy believes vast improvements can and should be made in the protection market. He claims confusion is rife, and for many borrowers there is a lack of knowledge as to what is available and what protective cover they already have in place through the likes of critical illness and life assurance.
He feels there is a need for a rationalisation of products to help bring clarity to the market, which will in turn make it easier to bring a standardised level of protection to as many people as possible. He hopes it will prevent a return to the situation in the early nineties when repossessions were running at a rate of 1453 a week. Burrows feels further improvements need to be made to avoid members of the public being forced out of their homes.
However, Ted York, managing director of Berkeley Alexander, refutes much of what Burrows has to say. He says there has to be a certain number of products in the protection market, to cover the different areas, and questions how there can be confusion over a product such as MPPI named exactly after its function. He points to the cooling off periods, and the plain English document wording initiatives that are in place as safeguards for the consumer, and feels Burrows may not be giving the MPPI market sufficient credit for what it does do well.
While there has been concern over the take-up of MPPI, York is not despondent about this. Although only half way towards the Government target of getting 55% of mortgagors to take out protection insurance, York says the market may be close to saturation. York says around 10% to 15% of the working population are involved in the public sector and believe themselves to be safe enough as not to require MPPI. He accepts the wordings for the self-employed are not brilliant, and that work has to be done in creating better products for this sector. However, York says with one or two other professions excluding themselves due to their circumstances, MPPI can only be sold to around 75% of the country’s workforce. If MPPI is already providing cover for 25% of the market he asks if a saturation level of one third is bad. He thinks not.
Selling MPPI is always going to prove difficult, and much has been done in terms of educating the consumer to its benefits, and the bridge it can provide until government benefits are available.
However, consumers do need to be helped along and as such Nationwide has been offering a year’s free MPPI on the mortgages it has sold since January this year. Spokeswoman Sherrie Rowlands says the initiative has proved very successful, although its real worth will not be truly known until after figures can be collated for the take up of the product once the year’s free cover runs out.
It is ultimately a question of whether the consumer sees the product as value for money and this has not always been the case. Indeed Allan Rosengren, chief executive of intermediary Falcon Group, comments: ‘The majority of products do not appear in my own view to offer good value for money.’
Prices set to rise
Although Rowlands says Nationwide’s prices have been constant this year, things look set to change. Claims costs and frequency have been rising and as underwriters fear more redundancies policy criterias have been tightened. This has been reflected in longer initial unemployment exclusions, and intermediaries need to look beyond the headline costs, to ensure they are getting the right level of cover for their client.
Rosengren, comments: ‘One needs to take into account that the insurance market is suffering the effects of 9/11 and various natural disasters since and also high levels of PI claims, so there would appear not to be much capacity for MPPI cover, given that it may be viewed by insurers as relatively high risk and fairly difficult to administer and manage claims.’
The CML accepts that it has been difficult to sell MPPI in recent years and spokeswoman Sue Anderson says: ‘We have been in a very benign economic environment with low interest rates, unemployment and high consumer complacency.’
While this has not made MPPI a priority with the consumer in recent years, it seems with added awareness and the threat of troubled economic times ahead, take-up for MPPI may continue to swell.
Edward Murray is news editor