There is no doubt about it, 2009 is set to be yet another depressing year for MPPI. Inextricably linked with the mortgage industry, Peter Carvill asks how the product will fare Click here to download pdf (PDF, 1.57MB)
The only question that really applies to the number of new mortgage payment protection insurance (MPPI) sales is not 'Have they fallen?' but 'How much have they dropped?' since figures from the Association of British Insurers' (ABI) have shown continual dramatic declines since the last time the market increased in 2002 to 2003. Between 2003 and 2004, the number of new policies plummeted by 23.5%; 2004 to 2005 fared only slightly better with a 23% drop; and then 2005 to 2006 appeared to be reversing the trend with a 7% downward slide before the figures for 2006 to 2007 showed the biggest recorded loss of 26%.
In terms of the numbers of policies in force, the story of continual declines is the same, albeit on a less dramatic scale. That figure declined by 9% between 2006 and 2007, continuing the decreases of 2003 to 2004 (9%), 2004 to 2005 (1%) and 2005 to 2006 (7%).
The relatively good news for advisers is that, despite the decrease in the proportion of homes covered under these policies from 20% to 18%, the proportions of those selling MPPI have remained roughly the same since 2001 although the share of policies sold by lenders has decreased a little with that loss being taken up by intermediaries. This is demonstrated in the Competition Commission's June 2008 Market Investigation into Payment Protection Insurance: Provisional Findings Report which details: "As noted ... intermediaries often recommend their own choice of MPPI policy to sell with a mortgage, and this appears to have resulted in credit providers seeing lower penetration rates for their own MPPI policies."
Brace yourself
With sales and number of policies in force dropping so rapidly, there is no question of the MPPI market having increased by next year. Indisputably, 2008 will show more falls with the situation carrying on into 2009. The question, then, is how bad will the fall be?
Simon Burgess, managing director of British Insurance, says that despite the increase his company has seen in MPPI sales, he expects an even more dramatic fall across the rest of this year into the next, especially as the market is currently 'massively down': "Next year," he says, "it will fall of course. Absolutely. I think it will be halved again."
There is a clear risk with the product so closely linked to mortgage sales that it could suffer in the same way as critical illness (CI) sales have: the latest ABI figures show that sales of that product fell by nearly two-thirds in a year due to the ongoing crisis in the credit markets. Judging by its fellow products in the protection market, it looks like MPPI will take a battering over the next year.
"I do not expect mortgage-related sales to grow in the next 12 months," says Rod McKie, head of protection marketing at Aegon Scottish Equitable, "I'm optimistic that they will be a bit more positive in 2009 and we may see more of an uplift there. We'll certainly see, for now, a flat or slightly down-turned market."
He adds: "There's no getting away from the fact that the purchase of mortgages is the catalyst for mortgage-related sales. It'll be that way for the next six to 12 months at least but it depends how long the credit crunch lasts."
Accessory to A crime
If MPPI has enough on its plate with the unyielding economic conditions that the world is facing, it is being held alongside PPI in the Competition Commission's investigation into the mis-selling of protection. The situation, as it stands, is that payment protection insurance (PPI) sales now have to be separated from the point at which credit is made available.
While MPPI and PPI are different products, the sharing of those three letters will, in the eyes of consumers, make the product guilty by association. This would be compounded by the eagerness of regulatory bodies to place the two products together. The most egregious example of this is on the FSA's Money Made Clear website which has a table, entitled 'Protecting Income or Borrowing' which lists all forms of protection alongside each other. MPPI and PPI are listed next to each other. The table not only uses the same wordings for the two products, but part of the MPPI entry refers and links to a news section and comparison tables for PPI policies.
The Competition Commission's investigation into PPI and MPPI was aimed at looking into whether there was an undue lack of competition between providers of PPI and whether consumers were being fully informed as to their rights and choices. MPPI, although not given a completely clean bill of health, was found to be a comparatively better product for consumers than PPI with the ... Provisional Findings report stating: "By far the greatest level of search was among consumers looking at MPPI, where 21% of consumers compared policies. Most people who did compare policies did so by looking at different combinations of credit and PPI."
However, the overall conclusions drawn by the Competition pCommission were not positive ones, as it details a few pages further on: "We found no evidence of a clear relationship between PPI price and quality in either PLPPI (Personal Loan Payment Protection Insurance) or CCPPI (Credit Card Payment Protection Insurance) and a relatively weak relationship between price and the quality of MPPI."
Andrew Strange, policy director at Aifa, speaking in an interview with COVER last month, said the association still disagreed with the FSA over its pairing of PPI and MPPI in its investigations. But should the Competition Commission have investigated the two products separately?
"No, because the products are all the same," says Burgess, "The Competition Commission should have investigated the whole PPI market, MPPI included. If the market is operating properly, what have the providers and brokers got to worry about? If the market is operating fairly, it will take the conclusions from the Competition Commission and restore confidence."
Spot the difference
Peter Chadborn, principal at CBK (Colchester), is hesitant to talk in-depth about PPI as it is not a policy his company sells but he does offer a discordant view to Burgess: "The Competition Commission should have kept them separate. While people like myself would put them under the same heading, there are enough differences to view them separately."
Both, though, agree that the Competition Commission is liable to have a big effect on the perceptions of MPPI and its future state in the market. As Chadborn rightly points out, the fact that the product sounds similar to its justifiably maligned namesake does not do it any favours in the eyes of the public.
Burgess is forthright about what the future holds: "The sellers are operating to the detriment of their customers and it needs to be stamped out. The enforcement actions from the FSA are making people wary of the product alongside the Competition Commission's workings."
