He adds: “We support the view that PPI should be de-linked from any credit arrangement. It should be clear to the consumer that access to the credit is not conditional on buying PPI.”
Despite the various organisations clamping down on the insurance sectors, concerns still rage that borrowers are being mis-informed and given policies that do not reflect their needs.
Hugh Nichols, proprietor at Badbury Berkeley Financial Services, says that the market still needs rapid improvements if it is to see a return of customer confidence. Nichols suggests a number of initiatives that would help to improve the state of the fragile market. He says: “At present, cover is not being bought as it should be, it is being sold. The need for cover is greater than ever but the product is seen as a profit centre with sales personnel being targeted to sell. This has led to contracts being sold with clients hardly knowing. How many people have applied for a personal loan and not realised the quoted monthly payment includes ‘loan protection’? The way the product has been sold has meant it is not price sensitive, meaning commission mark-ups can be high.”
Nichols adds: “The way forward is easy. Automatic opting in to any form of insurance or assurance should be stopped. Cover should be fully explained before the sale and written details are issued. These details should show options and claim details. If the client is self-employed or has a record of unemployment, sickness, etc, and clearly would have problems claiming, then it should reflect in the recommendation.
"A recommendation should also not be issued until a factfind has been completed. The approach of ‘if you do not like the contract within 30 days of receiving details, a full refund will be made’ is not acceptable and really says ‘we do not know much about you, but want to earn commission’. Most importantly where the premium is added to the loan, it must be highlighted in writing that interest charged thereon increases the cost.”
A place in the market
However despite lapses in the sales process, there is little doubt that PPI and MPPI have a place in the market, if regulated and controlled properly. James Carter, IFA at Independent James, explains that the industry has received bad press, but has a vital role to play.
“Although MPPI does get bad press, it does have a place in the market,” he says. “The type of policies that were getting bad press was lump sum MPPI, where advisers – using the term loosely – were adding a number of years premium on to clients’ loans. This means that the insurance would cost them a significant amount more over the term of the loan and would pay a high upfront commission.
"I have written several policies on a monthly premium basis. They can be useful for older clients and those in higher risk occupations where income protection would be prohibitively expensive. While there are many exclusions on MPPI, as long as the clients are made aware of this, it does have a place. I must admit, however, that as my client base is largely young professionals, income protection is usually more suitable.”
MPPI benefits
While PPI covers a range of issues, from car insurance to washing machines, MPPI is specifically for the use of mortgage protection, should the borrower be unable to make mortgage repayments for one reason or another. In an age dominated by concerns over debt and the frivolous nature of the ‘spend now, save later’ generation, protection is essential, particularly on what is likely to be the biggest expenditure in the borrower’s life.
While for many aspiring first-time buyers, and indeed borrowers already on the ladder, see owning their property as a major step, due to ever-changing personal circumstances, be it as a result of illness, unemployment or any other scenario that leaves the borrower unable to make the monthly repayments necessary for a mortgage; protection is essential. With many borrowers also experiencing changing mortgage levels, as a result of increases in the Bank of England Base Rate, protection is perhaps no more prevalent than in today’s society.
Conclusion
It is clear that the FSA’s reservations focused on very real concerns within the PPI and MPPI markets and although the decision to refer the markets for further investigation was met with surprise, it is believed that, since the announcement was made, improvements have been made. While a number of firms have felt the strong arm of the regulator in relation to fines and guidance, it should be welcomed that the FSA is being proactive in the sector.
Although the report is still in development, the fact that the FSA has strived to improve the market should serve as a warning to firms that may have otherwise ‘taken their foot off of the gas’. Further improvements are needed and with the OFT, FSA and CC, in addition to industry trade bodies, expressing the need to further improve the market, it would seem that at last the various organisations are in agreement over something. Reaching a satisfactory conclusion however, may be a harder bridge to cross.
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