Mortgage Payment Protection Insurance (MPPI) was ‘caught in the crossfire' of the PPI scandal. With the market contracting to a handful of providers, Fiona Murphy asks, does MPPI still have a place for consumers?
Having a safety net to make sure you are able to meet mortgage repayments if you are unable to work or lose your job should be at the forefront of consumer's minds. However, the decline in the Mortgage Payment Protection (MPPI) Insurance market suggests this concern is getting further and further from the norm.
As the below tables show, just a handful of providers, and just two household names, Legal & General and LV=, sell MPPI policies, or policies that are similar in some way.
Traditional MPPI is designed to cover mortgage payments for people unable to work due to accident, sickness or unemployment.
In exchange for a monthly premium, MPPI policies pay claimants a set amount each month to cover their mortgage repayments.
Policies pay claimants anywhere between 50-75% of their gross monthly salary. In addition, with these policies, the maximum benefit period is usually either 12 or 24 months.
Guilty by association
The market has significantly shrunk over recent years. Nationwide, is one notable household name, withdrawing from the market earlier this year. Why is this the case?
It's clear a lot of the market's woes can be attributed to how it was dealt with by the Competition Commission in 2011. The watchdog had put structures in place to tackle widespread mis-selling of Payment Protection Insurance (PPI), which is an entirely different product. One of the significant developments bought about here were changes to how such products can be sold or promoted by advisers.
Nick Kirwan, executive committee member of the Income Protection Task Force says: "I think MPPI ought to have its place but it was caught in the crossfire of the Competition Commission remedies of PPI, probably unfairly.
"Therefore it's now a very difficult product to sell because it suffers from those remedies. It has the point of sale ban and the time where people are thinking about such products are at the point of sale when they're taking out their mortgage, but you're not allowed to sell it at that time."
The real fallout from the PPI scandal, was the fact products such as MPPI now suffer reputational issues as consumers either do not understand such products or simply believe they are guilty by association.
Michael Aldridge, sales director at London and Country mortgage brokers says: "It's been tarnished by the whole PPI scandal and dragged in the mire. People believe it's the same product, just related to a mortgage. A lot of people who were involved in that market pulled out because consumers don't want to buy it rightly or wrongly, and therefore they're not getting any traction with it. It's a shame because the concept of the product is good."
For Kirwan, the treatment of MPPI was not warranted: "The reason I say it was unfair was for all the reasons PPI suffered those remedies, MPPI didn't really have those problems. There were few complaints at the Ombudsman. Those that were at the Ombudsman had low uphold rates. It's a product that typically provides great value for money. PPI was very profitable whereas MPPI wasn't any more or less profitable than other similar products such as Critical Illness or life insurance. It wasn't a product with extortionate margins."
Does it still have A place?
For many advisers, a problem with MPPI lies in the fact that such products are underwritten at claims stage. This means when many people find they are either declined for cover or have pre-existing conditions excluded at that point. Medical conditions are not picked up from the outset like typical insurance contracts.
Peter Le Beau, managing director of Le Beau Visage says: "In principal an MPPI product is not a bad buy as long as people understand it. It would be nice if the underwriting could move away from pre-existing condition exclusions and the market is small and specialist."
