While 2007 will be remembered for a number of things.
From Britney Spears’ cyclone into depression, to the flooding which engulfed large swathes of the country, what many in the financial services industry will recall is the problems of payment protection insurance (PPI) hitting home.
With the review by the Office of Fair Trading emphasising the bad smell which followed this product around, a fear factor gripped advisers over whether or not to deal in this area.
At one stage, a poll put the number of mortgage intermediaries advising on PPI at around 25 per cent.
Returning to the market
However, as problems were identified, solutions were created and the industry evolved to mend its tarnished image. Many sort to distance mortgage payment protection insurance (MPPI) as the issues surrounding PPI were often not comparable.
But while 2008 may only be a few days old, a new year brings new hope to all areas and many within the insurance industry will be hoping that brokers will return to offering protection cover.
This is especially relevant in the current economic environment. As Kelly Ostler-Coyle, spokesperson for the Association of British Insurers, says: “With the way the financial markets are at the moment and the level of debts which people have taken on, cover is important.
"However, they need to get the right advice as to the right product for them – it might be better for them to have payment protection, critical illness or other cover.” This would be natural territory for brokers, who are in a perfect position to judge the needs of the client.
However, even providers admit that advisers have been placed in a ‘Catch 22’ position by the issues of the past, as Tim Eacott, compliance director of Select & Protect, claims: “It is not entirely surprising that many mortgage brokers continue to be dissuaded from selling MPPI cover during the continued regulatory focus on PPI.
"At the same time, it is questionable as to whether a broker is treating his customers fairly if he recommends a mortgage without discussing the affordability in both good times and bad. Not a comfortable scenario for any broker.”
An advice necessity
But while the increased regulatory focus may intimidate many intermediaries from offering these types of protection product, it is not only safer to offer them now but also necessary.
As Eacott notes: “While the regulatory focus has no doubt prevented some inappropriate sales, it has also caused many people who would, and should benefit from MPPI cover to miss out on that protection, leaving them exposed to hardship and even the loss of their home if they are struck by accident, sickness or unemployment.”
This will no longer be tolerated by the regulator and the Financial Services Authority’s (FSA) attitude towards ‘Treating Customers Fairly’ (TCF) means that advisers must ensure the protection needs of a client are considered and advised upon accordingly.
The TCF deadline of 31 March will only focus minds on this and it won’t be long before those who continue to ignore this area feel the full force of the regulator.
Ideally this shouldn’t be a process which brokers are forced into kicking and screaming and there are benefits which should make up for the extra work.
At a time when the market is slowing, every client is an opportunity which cannot be turned down. As long as the advice is right for the client, whether it is to take a protection policy or not, brokers shouldn’t be faulted for looking to earn a living for the advice they provide.
Embracing the changes
At the end of the day, the responsibility of maintaining the cover is with the customer. Brokers should do everything to ensure premiums are maintained as it is often the insurance policy which goes first in any cost-cutting exercise.
As David Mead, managing director of Flexible-mortgage.net, highlights: “The need for good advice across all areas has never been greater and there is no doubt that in the factfind process, you will see what kind of cover is right.
"Then it is up to the client to pay. If the budget is squeezed, there could be pressure and they let it go. However, the adviser has got to make the recommendation in the first place and make sure they document that they have.”
Therefore, it is up to brokers to embrace the changes which have already been made and implement those that are forthcoming. You can never influence the proceedings standing on the sidelines and this is becoming a game in which advisers cannot afford not to participate.
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