In today's market, insurers need to explore other ways to protect consumers. Paul Walsh examines the industry's failures and options.
Other areas of the insurance market have already begun to adapt and are offering policies, which cover in a measured and realistic way. For example, travel insurance providers have removed excess cover such as jewellery cover and can offer a more cost-effective product as a result.
Simplicity is related to consumer demand more. Consumers, more than ever, want to fully understand a product’s benefits before investing in it. Policy documents need not be equivalent in size to a telephone directory.
By removing a lot of the jargon traditionally associated with insurance policies, insurers can begin to win consumers’ trust and maintain and renew their custom.
While major players can do all they can to incite consumers to invest in these products, there are other ways to give people the protection they need.
By recognising the need for a range of products to cover consumers, everyone can benefit – insurers from generating large quantities of business, lenders by having the risk of arrears and default reduced and, most of all, consumers, who are protected and can make their repayments.
Popular in the us
A popular method in the US market is underwriting waiver clauses in loan agreements. This concept means that borrowers can waive their repayments for a fixed period of time in the event of loss of income.
In the event of illness or redundancy, consumers are generally without income for approximately three to six months. So, a six-month waiver repayment clause would alleviate large money difficulties for consumers who do lose their income, and give them peace of mind while they take stock of their financial situation.
Waiver eliminates the insurance element away from the consumer and places it with the lender instead. Insurers can provide a contractual liability insurance policy (CLIP) to insure the lender against the losses they may incur by offering their borrowers such a benefit.
This may result in a small increase in the cost of the mortgage for the consumer but over the course of a 25-year mortgage, the cost to the consumer would be negligible and far outweighed by the peace of mind and cushion it brings.
Or alternatively some lenders are looking to absorb the cost within the loan.
By accepting that protection is a concept, which currently does not resonate with consumers, this product is making a potentially revolutionary advance within
the market to benefit all parties without the pitfalls and regulations of MPPI.Lenders are given the comfort to increase lending and borrowers the confidence to
borrow.
Paul Walsh is chief executive of CUNA Mutual
