The low take-up of mortgage payment protection insurance (MPPI) is an enduring problem, with less than 20% of all mortgages being covered.
Meanwhile, repossessions are increasing – the Royal Institution of Chartered Surveyors believes they will rise to 45,000 in 2008. If a big repossessions problem should materialise, have brokers done enough about selling mortgage payment protection insurance (MPPI) to their mortgage customers? Can they be accused of not delivering Treating Customers Fairly Outcome 3, ensuring that customers can expect clear information before, during and after the point of sale?
Full service
Effectively selling MPPI and other protection products not only brings in extra and regular commission income, but also illustrates that brokers are treating their mortgage customers in a holistic and fair way. The reality is many mortgage brokers do not understand the psychology of successful protection insurance selling, nor how to do it in a fully compliant manner.
Fortunately, the market is seeing a resurgence of training courses for mortgage brokers who want to redress the balance and start to increase their sales of mortgage related protection products – not only to generate more income, but also to provide their mortgage customers with a safety net to safeguard their home, should unforeseen misfortunes materialise. There are a few key issues and strategies for upping the success rate of protection insurance sales.
First, it is interesting to understand why insurance selling skills have declined. When life insurance companies maintained large direct sales forces, these teams were supported by skilful and effective sales training, which not only made sure the sales people had a full technical understanding of the products, but also knew how to approach the topic with customers. Now that these direct sales forces have largely disappeared, information on the technical product aspects is forthcoming enough – but no one is teaching the psychology of the sales process, which is the gap that these new training courses have now started to fill.
Protected
One important thing to understand is the mindset of the mortgage client. Every mortgage customer is sure of the fact they want and need a mortgage deal – they are looking for someone who can sell them an appropriate and attractive product.
On the other hand, virtually no one believes they need protection insurance until a skilful and well-trained adviser convinces them that they do. Borrowers caught up in the excitement of buying a new home do not want to think about illness, redundancy, accidents or untimely death, but the good insurance sales adviser must find the right way to approach these subjects, because they will become the grim reality for some buyers.
Advisers who are authorised for both mortgages and general insurance advice and sales have a ready-made and powerful sales aid in the form of the initial disclosure document (IDD), which they must give to each new customer.
This is because the joint IDD brings the question of general insurance onto the table at the earliest stage of the proceedings. This is important, because the mortgage sales process can be protracted and trying to introduce the topic of protection insurance for the first time at the end of the mortgage advice session is likely to be met with indifference born of fatigue or information overload.
Far better to use the opportunity opened up by the IDD to explain to the client that you will be covering the topics of both mortgages and insurance – even if insurance comes later in a separate session. This links the two products together, setting up the insurance appointment right from the outset.
Having established the insurance discussion as an integral part of the mortgage advice process, brokers need to remember that customers need a more sober, considered approach when being asked to think about the fact that taking out a mortgage creates a big liability that must be serviced every month by the mortgage payment.
The earners whose incomes have been used to calculate the affordability of the loan need to be gently guided towards the fact that should they lose the ability to earn that regular income – for whatever reason – then failure to provide for this through having a protection policy in place will place a burden on their spouse/ partner and children.
One classic analogy is for the broker to ask the borrower to imagine a machine in the corner that churns out money every week or month, and whether – if such a miracle machine could be obtained – it should be insured against temporary breakdown and/or permanent loss. The parallels are obvious and powerful.
Objectives
Of course, selling an idea is only the start of the process. It needs to be followed by good quality fact finds and suitable product advice.
With the FSA listing protection insurance as one of its key TCF supervisory priorities for small firms in 2008/9, regulatory obligations cannot be taken lightly and advisers need to make sure they are delivering against the six TCF outcomes. In particular, Outcome 4 specifies that advice is suitable and takes account of customers’ circumstances, and Outcome 5 requires customers to be provided with products that perform as they have been led to expect.
Without good product knowledge and compliant sales systems, advisers might well fall short of delivering these outcomes. Taking accident, sickness and unemployment insurance (ASU) as an example, advisers need to make sure that decreasing term policies sold are sold to customers with repayment mortgages, not level-term policies that are more suitable for those with interest-only mortgages.
Similarly, day-one cover is expensive and not necessary for customers whose employers are contracted to pay them for the first three or six months of absence through sickness.
In addition, some unemployment cover is indexed so that payments keep pace with inflation, while other policies will pay out the same amount irrespective of the passage of time, while some occupations are not covered at all, for example, the self-employed are almost always unable to claim for redundancy.
Once mortgage brokers understand protection products, and how they can be successfully sold to mortgage customers, then they can start to benefit not only from increased earnings, but also from the confidence that their customers will continue to enjoy the benefit of their homes, should sickness or unemployment intervene for a while. n
Richard Angliss is managing director of Home Buyer Systems
