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Safe as houses

by: Mortgage Solutions
  • 14/12/2009
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Nigel Payne points out the necessity of adequate protection insurance, and the opportunities for brokers that this presents

We all know that cash is tight for everyone right now, but the irony is that while homeowners can least afford an added cost to the monthly bill,  they need mortgage payment protection
insurance (MPPI) now more than ever.The prospect of interest rate rises in
2010 is an ugly spectre lurking in the shadows, as is negative equity.

A recent  report from Fitch Ratings showed that 15% of prime mortgages are in negative equity, and that number is expected to rise to 34% if house prices fall in line with its expectation of a 30% decline from peak to trough. Talk of a ‘double dip’ recession is still
prevalent among commentators.

While property prices have been rising this year, some of the latest figures are contradictory: Nationwide claims prices rose for the seventh consecutive month in October, while others suggested that they actually went into reverse for the first time in seven months. Estate Agent Savills predicts that prices will fall back 6.6% in 2010 after rising by around 4% in 2009.

If homeowners fall into negative equity, it does not necessarily present them with a
problem, as long as they have no need to move and can continue to make their mortgage payments. Affordability, however, is the obvious question. If interest rates rise in 2010, how will cash-strapped homeowners cope, especially in the face of redundancy or sickness?

The outlook is fairly negative, but it does  present a great opportunity for brokers
to sell MPPI and increase their revenue.Brokers still contribute over half of new
mortgage business despite the recession, yet only submit modest MPPI sales. It is
clear that many are not being as active as they could and that some have given up
selling MPPI completely. This is not surprising, perhaps, with the negative press given
to payment protection insurance. We all know that MPPI, along with all
types of PPI product, has taken a battering, and that many customers and brokers alike
are now wary of this type of insurance.

In the latest development, MPPI firms have agreed with the FSA to refund by  the end of 2010 approximately £60m to customers who have suffered from the increases in premiums and any reductions in their cover imposed this year. Providers will also need to reinstate policies where a customer had cancelled it within two months of an increase in premium or
reduction in cover made during 2009.

Premiums and cover for existing customers will be frozen for at least the remainder of this year, and MPPI contracts will be amended to ensure all customers are made aware of the circumstances under which providers can vary premiums and cover. There can be no doubt that the investigation by the Competition Commission has forced the industry to evolve its products to meet customer needs better and the principals of TCF.

Thanks to investment in product development by some insurers and distributors, there is now a much broader choice of products that can be tailored to individual customer needs. With wider product choice and more complex but tailored product options, the market is ripe
for good broker advice. Brokers should be aware of the new choice of products available
and how these are now underwritten and take advantage of the clear need for
these products now.

Customer retention and long-term income depend on customers recognising
that they need these products and that what they are being offered is the best in
the market for their particular needs and circumstances. If brokers, together with
the industry can step up to the plate now, understand and embrace these new breed
of products, and raise awareness of the benefits amongst customers, then there is a
significant market opportunity.

Brokers need to: Take a fresh look at the MPPI market and compare the latest products. Flexibility and products that are individually underwritten are key. Take full advantage of the product training offered by MPPI providers. Fully understanding often complex products will
be the key to unlocking the value which brokers can now offer customers.
Take advantage of the marketing and sales support that providers offer to
maximise the revenue potential.

Consider cross-sell opportunities: existing clients who might previously have
dismissed MPPI could now benefit from a fresh look at the product at review time,
so there is potential for increased revenue from both new and existing business.
MPPI products continue to evolve, and the market potential for brokers is clear.
However there remains a significant  job to be done to heal the damage to its reputation and educate homeowners of the benefits and even necessity  of protecting their mortgage
payments.

A lot of work has been done to clean up the industry: like Noah’s flood, the Competition Commission, the FSA and to some extent the glare of the national media has all
helped to wash away the bad and leave the good. Thankfully, the future now looks bright for MPPI. With specialist providers who understand the broker market and can develop products that are both profitable and compliant with the principles of TCF, let us hope the ghouls and spectres will be kept at bay for homeowners in 2010.

Nigel Payne is managing director of Assurant Intermediary

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