MPPI needs detoxifying MPPI, argues Kevin Paterson, sales and marketing director, Assurant Intermediary
Mortgage payment protection insurance has been a stalwart of a mortgage intermediary’s general insurance portfolio for many years. Sadly, it has become a product viewed with a great deal of nervousness by some and downright distrust by others.
So why is MPPI seen as a toxic product? The OFT and Competition Commission investigations into the payment protection insurance market brought to light negative aspects of many of the current products. They also were fairly damning of the sales processes employed by some distributors as well as the margins being made. The resulting negative headlines and vigorous campaigns by consumer bodies such as Which? led to many consumers questioning the value of this type of cover.
At the same time, the FSA’s thematic review hardly showered the industry with praise and resulted in the banning of the sale of single premium policies.
And then the credit crunch really took hold. We now find ourselves in the pit of recession and MPPI claims have gone through the roof. This has led to the strict imposition of policy terms and conditions as well as premium increases by most insurers, attracting more negative press. Such has been the furore that the FSA stepped in and reached an agreement with MPPI firms to refund approximately £60 million by the end of 2010 to customers who have suffered from an increase in premium and any reduction in cover imposed this year. Providers also will need to reinstate policies where a customer had cancelled within two months of a rate rise or reduction in cover.
It’s no surprise that many intermediaries are nervous about selling MPPI and have sought alternatives for their clients such as long-term income protection. A valid product, but it doesn’t provide protection against involuntary unemployment, which is what most consumers want right now.
So what can be done to detoxify MPPI?
The traditional one-size-fits-all underwritten at point of claim is outdated. It is vulnerable to a high level of declined claims, as well as consumers not really understanding what they can claim against. Firms have historically made a play on the fact that it is underwritten at the point of claim. However, this is now working against them and has created the backlash from regulators and consumers alike.
At Assurant Intermediary, we believe that MPPI has to be more closely aligned with the way that other personal insurances are rated. We believe it has to move towards being an annually renewable policy underwritten at the point of sale. Low risks will pay the right price according to their individual exposure, whereas the high risks will pay more – so no different than happens in the motor and home insurance markets. And if the risk is underwritten at the point of sale, then the risk of a high decline rate on claims is vastly reduced. The policy is tailored to the individual’s risk profile and, therefore, it is unlikely that there would be a situation against which the consumer couldn’t claim.
While revolution does not happen overnight, I would urge intermediaries not to turn their backs on MPPI in the meantime. Consumers need protection now. Existing clients who may have dismissed it in the past may well benefit from a fresh approach.
So take another look at the MPPI market, compare what is available and don’t tar all products with the same brush. And if you are nervous about selling this type of protection to your clients, take full advantage of the product training offered by MPPI providers. A thorough understanding of the policy terms and conditions is essential if you are to ensure that your clients know what they are buying, what they need to disclose to insurers and when.
MPPI products continue to evolve, and the market potential for brokers is clear. However, there remains a significant job to be done to heal the damage to its reputation and re-educate homeowners of its benefits.