From 6 April 2012, advisers will no longer be able to sell accident, sickness and unemployment style insurance products such as PPI and MPPI at the point of sale of a mortgage. The sales ban is just one of the measures introduced by the Competition Commission, following their review of the sale of PPI.
Although the Commission’s PPI order was a response to the high level of complaints from PPI policy holders, the ruling will cover other products like Accident, Sickness and Unemployment Cover, Mortgage Payment Protection Insurance and Short Term Income Protection. The products which the point of sale ban apply to are those that have a maximum time limit on the benefit period; have been written for a term of less than five years and are able to be terminated by the insurer. For the purpose of ease, I’ll refer to all of these products as PPI.
The main aim of the ruling is to make the sale of PPI separate from arranging credit, like mortgages, so people are absolutely clear that they are buying protection too. Also to better understand the cost and make customers aware that they have the right to shop around. A PPI quote must set out the cost along with details of the cover provided. Under the new rules, marketing material must make it clear that PPI is optional and available from other providers and clients must receive an annual review again setting out the cost of the cover.
However, despite the new rules coming into force in just a few days, our recent research revealed that over a quarter (28%) of mortgage advisers are unaware of the impending changes, and while 72% do know the ruling is coming into place, 52% are not fully aware of what the new rules mean.
The key issue for many advisers will be the time at which PPI-style products can be sold. Under the new rules if PPI is recommended alongside a mortgage, whilst a quote for the product can be given at any time, it cannot be sold until seven days after the date the lender formally makes the mortgage offer to the client, or seven days after a client is provided with the PPI quote – whichever one is the latter.
For example, an adviser may carry out a mortgage review, submit a mortgage and give a client a PPI quote at the same time. If the client receives a formal mortgage offer five days later, the adviser would have to wait a further seven days before being able to actually sell their client PPI.
There are two exceptions to the rule – if the sale of PPI is not connected to a mortgage sale or if a client initiates the sale of PPI over the phone or online. For the sale of PPI to be considered ‘stand-alone’ it needs to be at least a month since a client has received a formal mortgage offer.
In the instance when a client initiates the sale of PPI, an adviser can sell PPI 24 hours after a client has been in touch, however the Commission is clear that it will be looking closely at these cases to ensure that the adviser has not encourages or suggested a client get in touch to discuss PPI. It is not clear how the Commission will police this, but we are likely to see advisers waiting for seven days to pass in order to prevent any accusations of non-compliance.
As many mortgage advisers already operate a two-stage advice process it is possible to accommodate the sale prohibition with some careful documentation and diary management.
Since 1 October last year all PPI marketing has needed to outline the cost per £100 of benefit in order to help people easily understand and compare the cost of cover. As of 6 April, it will be essential for policyholders to be provided with an annual review in a format which clearly sets out the cost of their policy, what is covered by the policy and a reminder of the client’s right to cancel. The statement must also include a reminder that they can shop around for cover from alternative providers.
This new format extends to quotes given to clients, with the Competition Commission stating that clients should receive quotes that make it clear that they are able to shop around for PPI cover.
LV=’s research found that one in five mortgage advisers had already reviewed their sales practices and that a third had allocated time and resources to preparing for the changes. For those brokers who have not yet begun, it is important to start reviewing sales processes to make sure they can comply with the details of the order.
These changes will have a significant impact on the way protection products can be discussed when people are buying a mortgage and could result in fewer clients taking out PPI-style cover. So there is an opportunity for mortgage advisers to look at what alternative products aren’t covered by the ban.
The criteria outlined by the Competition Commission means that the sale of long-term income protection products such as income protection is not affected by the new rules. With many advisers looking at products to sell as an alternative to PPI at the point of sale, this shake-up could provide advisers with a welcome opportunity to broach the subject of longer-term protection products with their clients and expand their protection product range.
If any broker wishes to increase the range of protection products they offer, most providers would be happy to give training and guidance through cases, and some also offer the ability for the provider to complete the application over the phone with the client, making the sale easier for the mortgage adviser if they are used to selling protection products that aren’t fully underwritten.