Forever tarred with the same brush as its cousin payment protection insurance, MPPI has still not been given the opportunity to flourish. Barbara Cockburn insists that the time is now. Click here to download pdf
Mortgage payment protection insurance (MPPI) has a lifespan of 12 months and pays mortgage payments for a specified period, such as three months or six months if a claim is made because the policyholder cannot work if they suffer from an accident, sickness or unemployment.
But the problem with MPPI is that it is part of the payment protection insurance (PPI) family; which was caught up in the Office of Fair Trading (OFT) referral to the Competition Commission in February this year.
The MPPI industry insists it is a totally different kettle of fish to its infamous cousin PPI and it is not guilty by association.
The Council of Mortgage Lenders (CML) attempted unsuccessfully to persuade the Competition Commission to exclude the cover because it felt the product was a good one. It takes away the heartache of not being able to pay a mortgage due to sickness or unemployment.
One need only look at the dwindling sales figures to notice that MPPI has taken a severe knock. In 2006, the Association of British Insurers (ABI) and CML Research revealed that there were 263, 800 new policies, down from 273,500 new policies in 2005.
The problem lies in the amount of complaints Citizens Advice was getting about PPI. It referred the complaints to the OFT, which was concerned that PPI was a "sizeable market" with gross premiums estimated at £5.5bn.
It said there were indications that "consumers receive poor value in the low proportion of premium income paid out in claims". It also said that how consumers purchase their PPI, their understanding of the product and the quality of information available to them, "hinders competition".
Bernard Clarke, a spokesman at CML Research, said that the product's inclusion has been "quite unhelpful".
"There's now a perception problem among consumers about MPPI. IFAs now have to be scrupulous in their sales practices to make sure that it is targeted at the right customer and relevant to their circumstances."
Stephen Atkins, group compliance director at Freedom Finance, calls it "a highly frustrating situation".
"Because of the confusion, there are some good specialists who are suffering severely," he says.
PPI, he explains, is sold on top of loans and mortgages but MPPI is not the same. PPI is a single premium product, offering poor value and is sold – not advised on.
"Single premium is more costly than MPPI, which makes the loan bigger and expensive. MPPI is a straightforward monthly contract, but because it's part of the inquiry, the general public are not convinced.
"It's been unhelpful that it is tarred by the same brush as PPI, considering there have been no negative comments for MPPI."
The commission will report in September its "emerging thinking" and, if it learns that PPI has any adverse effect on competition, announce its findings in a report in April or May next year.
Guilty by association
Peter Staddon, a spokesman for the British Insurance Brokers Association (BIBA), says the industry should act now to avoid criticism that it is "tarred with PPI".
He says: "MPPI product developers should be looking at consumer debt and seeing if that product can alleviate it. I'm not a believer in the single premium PPI product, which I think isn't right. You pay it once, so it's not very empowering for the consumer who could be given more control by paying monthly. This way the product is financially less crippling."
Encouraging brokers to continue to explain to the customer what they are buying and how it operates, he says: "MPPI is worth £5.5bn and brokers have a 3% share in that by selling self-employment cover.
"I think MPPI is a good product and it has a place within a suite of protection products. It will be interesting to see what developments occur in the next 12 to 18 months."
Simon Burgess, managing director of British Insurance, is optimistic about the product as well as consumer knowledge of MPPI.
He says: "Consumers are more switched on. They understand the product because they have used the internet to research it. There are sites like Moneysavingexpert.com and Moneysupermarket.com, which give it more transparency because they tell you what MPPI is and how to choose a policy.
"MPPI is more commoditised and I've found that people don't want to talk to anyone when they buy so we have a FAQs section on our site."
He warns that where "traditional" prov-iders are losing market share at "a rate of knots", the opportunities lie where people are now switching to individual providers who can show tangible benefits and cost savings.
Atkins is not so confident MPPI will bounce back but suggests the industry will have to start thinking about changing public perception. "Once these things are aired on BBC's Watchdog it becomes so difficult to change public opinion."
He makes a valid point when he says the Government could face problems if MPPI is taken off the shelves.
"Many people who have MPPI – with its accident, sickness and unemployment (ASU) elements – would not have claimed sickness benefit or Jobseeker's Allowance, but if there's a downturn in the economy, the Government will come under pressure with more people on benefits."
Adrian Fowler, head of marketing at Assurant Solutions, agrees that the product has been hit hard by the negative connotations of being associated with PPI and that now is the time to be proactive in redesigning the cover.
"Penetration rates have dropped. Its reputation has been damaged and there have been lots of changes to compliance. The market is not taking the opportunity to look at product development and enhancements," he says.
"There have been no new entrants and the market isn't thriving in a competitive environment. Consumers have the opportunity to access the market but we need to align the product to their needs and their income so they get the right product."
Fowler strongly advocates the need for innovation in the market and suggests it is the responsibility of "those who want to move ahead to drive the product forward".
"IFAs, networks, and insurers have a responsibility to sit down together to brainstorm ideas as to how the product can be redesigned. We need to think about what the consumer is looking for. It all comes down to the price, flexibility and perceived value of the product," he says.
A risk-based approach to pricing with minimal underwriting may be a sensible option. "There is enough information when using a person's age, gender and occupation to get a risk profile and set a pricing level," he suggests.
Mark Howard, managing director of Health & Protection Solutions, a protection insurance consultancy, agrees that the industry is "sitting on its hands".
"This is a huge problem. I support the concept of helping someone through an illness or redundancy because it is the right thing to do. But we need to do something different," he adds.
Bespoke product model
He suggests a hybrid of ASU with life cover because the one-size-fits-all model is not compatible with today's lifestyles.
"Mortgages have changed. People are more flexible nowadays and move house more often. They have more choices such as a repayment, interest-only, fixed-rate, variable-rate mortgage.
"Lifestyles have changed. MPPI as one solution doesn't suit some people. The self employed, for example, aren't going to claim redundancy so it's not suitable. It's an impaired product because it's not designed to run alongside the mortgage loan."
An average person will take out a mortgage on a property they will live in for approximately five years, after which they may move to a bigger house.
Currently, a mortgage lifespan is usually 25 years but Howard thinks there needs to be some form of reviewable product every three to five years "because lives change and people need to protect their lifestyles".
Howard says: "It takes a lot of education and such a role should be taken by lenders and distributors. We need a product that is reviewable in smaller chunks and supports disability and unemployment. There has to be a structural change to the product."
Fowler adds: "We want to be fair to the consumer by rating the product according to their needs. No longer does one size fit all. We need to be able to understand the needs of each customer."
Atkins is not hopeful for the future of MPPI. He sees "very little" opportunity for IFAs. He says: "More sales will move to lenders. Banks will sell the product but it really needs to compete on a level playing field with brokers.
"People are sitting and waiting to see if the product needs to be re-established and revamped under a different name or benefit structure to give it a new look and feel."
MPPI seems to have gone stale and is in danger of being left to rot unless the industry uses this time to turn this adversity into a triumph. There is lots of interesting thinking among those close to the product but not enough people are springing into action. If the product is to survive, now is the time for it to shine. n
Barbara Cockburn is a freelance journalist
