Speakers at the 2016 Protection Review conference have urged advisers to rethink how they sell protection alongside a mortgage and for lenders to help ease this process.
Ahead of the Protection Review conference, 61% of 300 advisers polled described the relationship between the mortgage and protection industries as "broken."
During the first session of the day, Mark Graves, sales director at Sesame Bankhall Group compared a mortgage broker not selling protection to a pilot refusing to fly a plane.
He reiterated his words from the recent Sesame protection workshop that it was a "dereliction of duty" and a "moral obligation" for lenders and advisers to ensure that clients understood the value of protection.
He said: "We have to get that link away, from when you have that meeting, where all you talk about is covering that loan because the client is our asset. Their asset is the salary. It isn't 25% of it in mortgage payments. Your asset is your income. Don't just insure the loan, the credit card. We insure the whole lot. That is what we should do and we need to change as an industry."
"The biggest challenge we have is the lender will tell you that the biggest asset is the house, so the only asset that needs insuring is buildings insurance. It's only question they make us fill in on the mortgage application form, tick the box about buildings insurance, so either we'll do it, or the lender or they will find it online.
"Where is the question about protection? Where is the question asking whether that client's mortgage broker has given them a full understanding of the risks they're going to take of going into that property, taking out that loan for 25 years with no idea as to how they would pay back that loan if they were off sick from work. That's the challenge. "
When should brokers sell mortgages?
A key subject for panellists was: when is the right time for brokers to broach the subject of protection during the mortgage sale?
Kevin Carr, chief executive of Protection Review said of industry perceptions of mortgage brokers: "Some try to sell it at the ‘wrong' time, but when is the right time? Do you sell it first at the outset? Do you say, ‘we'll come back and sort it out later?' Will it ever actually happen if they do that?
"They say product knowledge is an issue. The products are perceived to be complicated and constantly changing especially CIC. They say customers just aren't interested, PPI has turned them off.
"They say the rewards don't match the effort, underwriting is a pain and there's no guarantee of the business going on risk and there's no guarantee of actually getting paid for all of this pain.
"Some say some mortgage brokers are just a bit lazy and can't be bothered.
"Interestingly some say the premiums of mortgage related cover should be higher so more people can be accepted at point of sale on standard terms.
"And they tell me it's all about affordability and the MMR hasn't helped borrowers protect themselves financially. Personally, I believe if you can't afford the appropriate protection, you can't afford the loan."
Income protection suitability
Theresa Fritz of the Financial Compensation Consumer Panel discussed why more income protection wasn't sold alongside mortgages.
She said she thought protection was being sold, but she questioned whether it was the "right" type of protection.
She pointed to FCA regulation, such as ICOBS 5.3.2, and questioned whether this was also confusing mortgage brokers and providing a barrier to income protection being higher up the agenda compared to life cover and CI at point of mortgage sale.
She said: "You need to make sure they understand the consequences of taking out a very large loan without protection. You need to go beyond the way the regulation is worded and ask ‘what the right kind of protection? What is the real need?' Yes CI is a great product if you are 1 in 3 who may suffer a critical illness at some point in your life. But far more people will suffer sick leave through stress, mental illness or back pain.
"When your customer walks through the door are you looking at them thinking how likely it will be that they have a critical illness in the next 20 years or if they would be more likely to be off work for another reason for say six months. If customers asked about IP and were given the option, I wonder what they would do."
Products, commission & proc fees
Meanwhile, Andy Philo, director of franchise distribution at Vitality said that products and commission structures needed improvement to engage brokers and customers.
He said: "For me it's not about simple products, it's about appropriate products."
Philo added: "We need to develop commission structures that appropriately reward advisers. The bane of our industry is, if we were reinventing this industry again, we would not use indemnity commission. We wouldn't pay 2 or 4 years premiums up front and claw it back, a fee based approach is what we really need to get to.
"We have a responsibility as insurers, not just to tweak the rate, we should pay you a better rate if the persistency is better. I think we should be paying commission over the term of the policy."
Discussing lenders, he said: "My first point is controversial, but what happens if we reduce procuration fees?
"I'm not saying we should abolish procuration fees because clearly that's not a good thing, but the impact on procuration fees [since the Mortgage Market Review] has had a massive impact on protection sales. There is a question mark on those, so I'm going to leave that as a question."
