Many in the mortgage market had hoped mortgage payment protection insurance (MPPI) would be spared the worst of the criticism when the Office of Fair Trading (OFT) published its recent report into the market. However along with the rest of the protection market, MPPI is being referred to the Competition Commission and real step changes for both insurers and brokers now loom large on the horizon.
What will stick in the throat of both the Council of Mortgage Lenders (CML) and the Association of British Insurers (ABI) is that they have worked hard in recent years to improve the design and sale of MPPI in the UK and have undoubtedly made advances in the right direction. However it was simply not enough and given the set up of the market, which so favours the high-street banks and building societies, there are bigger issues at stake than the basic design of the insurance and the cover it provides.
No shortage of problems
ut where did MPPI in particular fall down in the eyes of the OFT? Well certainly there was no shortage of problems. Although the OFT did accept that stand alone providers were more prominent in the MPPI market than in the PPI sector generally, it still found that 95% of policies were cold alongside mortgages. In questioning why stand alone providers found it so difficult to access this market, the OFT concluded that MPPI was not seen as a priority product and so demand was not as strong as for other financial products. It also found that because the banks and building societies had such a firm grip on the point of sale market that the advertising and marketing costs for a new player to make an impact were prohibitive.
Given this, it is not surprising that the majority of MPPI products are sold alongside the mortgage itself. However, due to price differentials between the cheapest and most expensive products in the market, consumers stand to lose thousands of pounds over the term of their mortgage if they choose poorly.
Many of the standard products available on the high-street do not offer the level of cover that will truly protect borrowers and still carry exclusion and excess periods that are too long. These products would quickly find themselves pushed to one side if MPPI was a truly competitive market and as policies began to provide better protection then demand for them would surely rise. In turn this would help close the protection gap which most accept is desperately needed.
Letting clients down
What is perhaps most disappointing is that intermediaries in the mortgage market are not providing clients with any real choice when it comes to MPPI. The OFT found that intermediaries in the market were acting in a similar way to the mortgage borrowers themselves. Rather than searching across the sector for the best policy possible, many have in place single supplier deals with MPPI providers and simply offer that product to each and every client.
While the evidence referred to by the OFT was anecdotal, it would certainly suggest that intermediaries in large numbers are letting their clients down and by refusing to take the time to get the best cover at the best price are acting to the financial detriment of their clients. Certainly it is difficult to see how this could in any way, shape or form be considered ‘Treating Customers Fairly’.
Improvements to be made
But where should the Competition Commission look to make improvements? It is unfeasible that mortgage providers should not be able to sell MPPI along with the mortgages they provide, however at the same time allowing them to abuse the position they currently enjoy is not an option and has been allowed to go on for too long.
Information and education are the cornerstones around which any improvements must be made. Consumers must be made aware that they are under no obligation to buy MPPI or that the mortgage provider is the only supplier of such a product. Sales processes also have to be tightened up to ensure that cover is only sold where it is appropriate. Too often individuals are paying for cover they already have or which does not work for their own personal circumstances.
While consumers are prepared to shop around to a larger extent in the MPPI market than for PPI products generally, they are still failing to look in any real numbers at what is available. We cannot force consumers to do this but should be working harder as a market to ensure that consumers seek out what is best for them.
One wonders whether the insurance market will regret its inability to make corrections of its own when it had the chance and rue the day it let things aspire to the heights of a Competition Commission enquiry. Either way changes to the market will be
long overdue.
