Despite being cast as the black sheep of the insurance industry, there is a future for the payment protection insurance markets if they can gain the trust of consumers. Lucy Quinton reports.
Following the Financial Services Authority's (FSA) clamp down on mis-selling in the protection industry, both payment protection insurance (PPI) and mortgage payment protection insurance (MPPI) have been dogged by bad press and questionable reputations. However, what is more concerning is that their tarnished image looks set to remain under the glare of the public spotlight.
While the protection market has stepped up its efforts to clean-up selling practices in the sector, the complicated nature of the cover means consumers are often unable to tell the difference between MPPI, PPI and other protection products. In addition, when one insurance product receives heavy scrutiny in the media, the industry's reputation as a whole is damaged because customers generally are unaware that one can be dissociated from the other.
Geoffrey Spencer, chief executive at Shepherds Friendly, says: "The biggest challenge currently facing the industry is gaining the trust of consumers, the media and the regulator. The much-publicised 'failings' of PPI products have resulted in providers and intermediaries shying away from them due to concerns regarding consumer scepticism and greater FSA scrutiny."
In order to rebuild its reputation, many believe that the protection market should look to actively distance itself from PPI. Peter Chadborn, principal of CBK Colchester, says the market should try to work towards this, although it may be difficult to achieve as consumers will associate the sale of these products with the market for many years.
Linton Penman, head of retail marketing at Unum, believes the coming 12 months will not be easy for MPPI providers because sales figures will not rise unless there are radical product improvements. However, he adds: "I fear that would only serve to create more confusion in the minds of consumers as the lines between PPI and MPPI become blurred."
What also concerns Penman is that policyholders are not made aware of the limitations of PPI and MPPI, and he says they are rarely offered the option of more appropriate cover. "MPPI is regarded as an easy sale by most advisers; 'tick the box, sign here, automatic acceptance, all done' tends to be the approach," he adds.
However, Chadborn disagrees, and says there is a future for MPPI, but it should not occupy the place in the market that it currently does.
Bumpy ride
Defending the products' honour in January, James Harrison, chief executive at Insurancewide.com, hit out at an allegation by the consumer body Which? that said products such as PPI were a waste of time. Harrison refutes the body's comments, claiming they are not accurate, and that "such policies are developed to cater for a need, to assuage a fear and provide peace of mind".
He explains that the real issue is not the products themselves, but how they are presented to customers at the point of sale. "Quite simply, buying them from the wrong people can increase the cost," he says. "The devil is in the detail, and the message to consumers is twofold - they need to understand exactly what they're buying, and research and buy it in their own time from the most competitive provider."
Picking up on this theme, Alan Lakey, principal at Highclere Financial Services, says the biggest challenge is educating consumers that PPI and MPPI have limitations. PPI has faced the greatest criticism out of the two, although MPPI has not emerged unscathed. While they are separate products, there is often a misconception that they are inextricably linked - partly by having almost identical acronyms.
"MPPI has its uses, although it is often sold by banks and building societies, as they decided some time ago that the rigours of operating as an independent adviser was not as profitable as running a tied agency. This means that they could be offering clients lower quality service and products, for example, MPPI instead of income protection," Lakey says.
Adrian Fowler, head of marketing at Assurant Solutions, agrees customers should partly be responsible for knowing what they are buying. However, he warns that consumers may be unaware of where they can access the right information, an issue that the FSA is actively targeting. In addition, while insurers should assume a certain amount of responsibility for informing customers, Fowler maintains they should not be held entirely accountable.
Greater transparency
Chris McFarlane, head of protection at LV=, says MPPI needs to become more transparent, both in terms of the product and processes around it: "Examples could include greater explanation of the potential benefits, when exclusions would apply and the claims process."
While Fowler says the industry should be held entirely accountable, McFarlane disagrees: "It is down to the industry to tackle this issue head on, as the protection gap is clearly a concern. MPPI has a place in the market but client and adviser education and product development all have a part to play too."
Fowler says there are several reasons for the slow uptake of the product, including negative publicity, a focus on regulation and the competition commission driving negativity in the market. He explains that innovation will be the driving factor behind the product's turnaround, and that customers should be the main focus in meeting this aim.
Drazen Jaksic, sales and marketing director at Assurant Solutions, says that there has been a decline in the number of people buying PPI and MPPI, which he thinks is strange because the credit crunch should be encouraging more people to take out protection.
Fowler says the next stage of product innovation in this market is to look at key events in people's lives. For example, many are now defaulting on mortgage repayments as a result of a partner dying or divorce, as opposed to an accident, sickness or unemployment.
Boosting take up
Matt Morris, policy adviser at LifeSearch, agrees, saying that the current scandal in the market may "dent sales but at the same time the mortgage market slump could have the opposite effect. There is a limited place for MPPI, although sadly it is likely that consumers will continue to be sold this insurance by banks and mortgage lenders when they are better off with another product".
However, while Lakey says the biggest challenge is in educating consumers, Morris argues the issue is selling MPPI responsibly: "Far too often it is sold when other products, such as IP and critical illness products, would be far more suitable."
According to Morris, the industry needs to ensure that PPI and MPPI are sold when they are the best or only option available. "When you consider the alternative products on the market they should be sold as a last resort, not a quick-fix first choice," he explains.
In order for these products to recover their reputation, Lakey says there should be proper policing by compliance departments. In addition, he says the FSA needs to ensure redundancy cover is not sold to the self-employed, and IP cover should be considered the most appropriate plan to protect against sickness and accident, unless there are compelling reasons against it.
Lakey stresses that while the products have come under criticism, "they do have their uses, particularly with regard to redundancy". However, he adds that, any plan, "is only as good as the advice that runs alongside it".
Meanwhile, McFarlane says MPPI sales will come under increasing pressure over the coming year as sales of homes fall and concerns over Treating Customer Fairly concerns. "Consumers need to protect their homes, income and quality of life. Advisers may increasingly look to alternative products and we would expect to see an increase in IP sales as a result."
What the PPI and MPPI markets seem to need is a firm hand to guide them through this troubled time. While the FSA's approach to mis-selling practices may seem harsh to some, it will ultimately rebuild consumer confidence. Consequently, there are many reasons why the protection industry should stick to selling PPI and MPPI, as the good times may follow once the products have been whipped in to shape. n
