Aiden Plumridge

Median Insurance

The advent of Financial Services Authority (FSA) regulation has focused the minds of brokers on ensuring that the advice they give is the best advice. They also have to be able to objectively demonstrate their due diligence in this regard. This puts an increasing emphasis on the quality and integrity of internal records and both the documentation provided to clients and the training and competency of the sales force.

Personal insurers have always had access to the Financial Services Ombudsman, but the FSA’s requirement that this be highlighted as part of a company’s complaints policy makes it paramount that there is a structured system in place to ensure that adequate and proper enquiry is made of the buyer. This will ensure the customer is supplied with the product best befitting his or her needs. The mortgage payment protection insurance (MPPI) sector also has, in addition to any regulatory pressure, potential scrutiny from consumer organisations such as Which? Caveat emptor no longer only falls on the buyer – it is time for the seller to be aware too.

Andrew Milburn

Progress from Royal Liver

Our stance has always been that advisers should recommend income protection with unemployment cover as an optional extra instead of MPPI. This will remain our stance, regardless of what the FSA review in this area finds.

Using this approach means the client is covered against both loss of income through ill health or accident and any risk of being unable to make mortgage payments after becoming unemployed.

We will not be selling the accident and sickness elements from accident, sickness and unemployment (ASU)/MPPI on the Progress menu whatever the outcome of the FSA review. We will continue to say that income protection with unemployment cover is the better option.

Some of our key distribution partners have said that this area needs review and we are not going to argue the case with them given that we have already chosen to offer income protection with unemployment cover rather than the accident and sickness elements of ASU. If providers are overcharging for cover then they simply will not be chosen by IFAs in product recommendations whatever the product and its suitability. In this respect, this might then be more of an issue for direct providers.

Stuart Wilson

Mortgage Advisory Service

The latest rumblings from the FSA are no great surprise, and symptomatic of the new era we are operating in.

Many brokers do an in-depth job of selling MPPI, however there seems to be a number of issues on this product that can cause concerns for the regulator, and indeed any business principal watching for potential personal insurance liability. Clients need to be made aware that benefits being paid to the lender direct may compromise state benefits. Sickness benefits will normally only last 12 months but for longer-term illnesses this needs to be considered in line with other existing cover. Clients also have to take into account what benefits they will receive from their employers. If they receive sick pay then often the benefits under the MPPI policy will be void.

With variations of employment contracts now including fixed-term contracts and so on, the adviser must carefully check what cover the clients will receive, making a detailed fact-find vital.

The thorny subject of single premium MPPI is one that sparks heated discussion, and I struggle to understand any justification for this outdated form of protection.

It is clearly required that clients are offered protection in the event of illness or redundancy, but as an industry we need to ensure there is detailed audit trails to show a fact-find has been carried out and ensure the client is fully protected, if they wish to be, with the right product. It may simply be better to refer it to a specialist.

Peter Hamilton

Friends Provident

One of the great advantages of MPPI is how easy it is to apply for – almost a tick in a box. However, that simplicity is also potentially a weakness, luring advisers and clients away from considering other alternatives.

We have seen significant growth in MPPI plans and the obvious danger is that clients with such policies believe they have more protection than they actually have. ASU will cover the mortgage outgoings, typically paying out a regular income for a maximum of one year or, in a minority of cases, two years.

But income protection can protect someone’s entire lifestyle. It makes regular income payments until you actually recover or, if you fail to do so, until the end of the policy term. More than 35% of all of our income protection claims in payment are more than six years old.

That is not to deny any place for MPPI. For those in particularly risky occupations, for example, income protection can be expensive (or possibly unobtainable) and MPPI, which normally uses a single flat rate as opposed to underwriting risks individually, may make more sense.

Stuart Codling

Mortgage Point

From my experience of dealing with clients there are two major issues with policies that clients already have.

First, if a client is self-employed and cannot prove their income they will normally self-certify. However, often they have still been sold a payment protection policy that will only pay out in the event of proof of loss of earnings. Clearly this policy will not ever pay out in the event of a claim.

Second – and probably the bigger issue – is that some companies are still selling up to six-year policies with premiums that are rolled up and added to the loan. This can add a huge amount to the loan and obviously there is then interest to pay for the next 25 years.

Are the clients really aware of the consequences of this and have they had all possible options explained to them fully? Personally, I doubt it and for the bulk of these sales would class this as bad advice. Have these policies been sold for the good of the client or the good of the pay cheque? I think we all know the answer.