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The Mortgage Clinic: Time to move clients away from MPPI?

by: Cover
  • 10/06/2011
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The Mortgage Clinic: Time to move clients away from MPPI?
Several clients have come to me with queries about existing mortgage payment protection insurance (MPPI) and PPI policies. I don’t have the time to read all the policy documentation, but given the current situation in the PPI market for Treating Customers Fairly (TCF) and compliance reasons, should I look into re-broking them into standard products?

Matt Morris, Lifesearch

The short answer is emphatically yes. Not all clients will be right to re-broke, but advisers should at least look into their needs and circumstances. In most cases, switching to income protection (IP) will be the right decision.

As most advisers acknowledge, IP should be at the top of the list of products to discuss with clients when it comes time to examine their protection needs.

There is nothing inherently wrong with PPI – it is a useful product as far as it goes. The problem is that is has been sold in huge numbers when in most cases, IP is the product that should have been sold instead.

PPI is quicker and easier to sell and because it is harder to claim on, it is far more profitable for the banks that have been pedalling it.

It is emphatically Treating Customers Fairly (TCF) for advisers to correct these mistakes with their clients where possible.

The reasons for IP being regarded as superior to PPI are well known and not necessary to cover here. But the comprehensiveness means that if a client is accepted, and it is affordable, there is no reason not to switch.

In addition, if an exclusion has been added, the adviser may want to consider the IP offering of Aviva, Bupa and Fortis as they all offer premium discounts when certain conditions are excluded from a policy.

Dean Mason, 
Masons Financial Planning

First and foremost, you either have the time to help and advise your client or you do not.

If it is simply not practical in your business at that time (unless you actually sold them the product originally, when you surely have a moral and professional -obligation), then you must be upfront with that client.

But of course, if it is a judgment on the value of that client, can you afford to lose them or risk what they may say about you for not helping? Assuming you do take on their enquiry, then clearly the client’s needs and priorities are far more important than the media hype and state of the market. These contracts did, and still, do work for some people.

A full and current fact find must be carried out and any recommendation cannot be influenced by the fact that they may be compensated by the organisation that sold them the policy.

As we know, income protection (IP) can be an infinitely more suitable product for many, especially for contractors and the self employed. Couple this with optional unemployment cover offered by some providers now and you have a credible alternative.

Putting the words -‘re–broking’ and ‘MPPI or PPI’ in the same sentence would clearly set the regulators radar spinning, and rightly so. But you have to look at Treating -Customers Fairly literally, not a compliance exercise.

For this reason, I would personally not turn any client, or potential client, away with any such query. I believe it would be time well spent and would diarise accordingly.

Phil Jeynes, PruProtect

There is nothing inherently wrong with most PPI and MPPI products. But the fact that many such plans were mis-sold, resulting in huge levels of complaints, has clearly tarnished their reputation. This could be why clients are examining their existing cover and raising queries.

The important factor to consider is why the plan was recommended in the first instance and whether a full income protection product was also discussed. As long as the customer understands the cover they have, including its limitations, there may be no need to look at a new recommendation.

The major difference between PPI and IP (which is what I expect is meant by a ‘standard product’) is the length of time a claim will be paid by the insurer. Most PPI plans pay for only 12 months, whereas full IP could pay right through to retirement, should the client be unable to return to work.

Despite this significant difference, for many clients the cost of IP will not be much, if at all, greater than PPI; the exceptions being mainly for clients in higher risk -occupations, such as manual workers. Many clients bought (and still buy) PPI plans for the unemployment cover, so bear in mind that not all IP providers offer this cover.

As far as compliance and TCF goes, ensuring your clients understand what they have and what else is available is the key, along with ensuring the product remains relevant to their ongoing needs.

Reading the policy -documentation, I am afraid, cannot be avoided.

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