Contractual Liability Insurance - Off the beaten track

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In today's market, insurers need to explore other ways to protect consumers. Paul Walsh examines the industry's failures and options.

Media reports about the squeeze on every societal group due to stagnating incomes, rising redundancies and spiralling living costs are almost a daily occurrence.

The average take-home income has declined by 3.1% between 2010 and 2011 and is expected to drop again for 2011 to 2012. The average family’s debt is also up 48% (January 2011 to January 2012).

Coupled with the decline in consumers protecting their loans in the wake of the payment protection insurance (PPI) mis-selling scandal, consumers are now less protected against unexpected events and life changes, which may cause a loss of their income.

This ‘protection gap’ has widened significantly meaning that large numbers of consumers are in danger of losing their home, cars and lifestyle.

Recent research from CUNA Mutual has found that 77% of people do not have any protection in place to protect against unexpected life events. This level is way down on the number unprotected in the days before the scandal surrounding mortgage payment protection insurance (MPPI), when the vast majority of new mortgages came with cover attached.

Unable to come up with the funds

More shockingly, when asked whether they would be able to pay an unexpected bill of £2,000, one in three university graduates would be unable to come up with the funds. This amount is the equivalent to a hospital expense or a major car repair and has been identified as a key figure when investigating financial fragility among the general population.

The fact that a third of the professional workforce cannot access this sum of money is shocking when you consider how quickly the size of unpaid mortgage payment sums can accumulate.

Personal finance pages are full of stories with reports of people who cannot make their mortgage repayments and the poverty to which they can be reduced. What has become clear from these human-interest stories is that the people who are affected by this are not just those on low incomes.

They include those with high levels of education and are from professional backgrounds. Due to the high volume of these stories, the reality of the poverty consumers are facing daily is sometimes lost. 

It is generally accepted that not everyone needs protection cover, but more need it than have it. One of the issues lenders are up against is convincing consumers that they need cover. Protecting mortgage payments makes sense to consumers in the event of loss of income, as it is seen as a major monthly expenditure. However, following the mis-selling scandal, MPPI is now considered toxic and no lender wants to sell it.

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