Payment Protection Insurance (PPI) and Mortgage Payment Protection Insurance (MPPI) have been under the regulators spotlight for some time.
With claims of mis-selling and bad, if not illegal business practices, it was only a matter of time before the Financial Services Authority (FSA) took action. However its decision to refer PPI, and MPPI to the Office of Fair Trading was met with criticism following the decision in early 2007.
Despite reservations of the PPI market, many industry commentators were unsure of the reason for MPPI being a part of the market study. The Association of Mortgage Intermediaries (AMI) and the Council of Mortgage Lenders (CML) both expressed their disappointment at the inclusion of MPPI to the referral of the separate industries to the Office of Fair Trading, and subsequently the Competition Commission.
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Following the original announcement, CML director general Michael Coogan, said: “The OFT should exclude MPPI from the Competition Commission referral, because of the significant differences that set it apart from the wider PPI market. The damage to confidence and take-up of MPPI that would be created by a referral cannot possibly be in the consumer interest.”
A spokesperson at AMI added: “We are very disappointed that the OFT has not taken on board the strong case AMI made for excluding MPPI from referral.”
While the study of PPI was set to revolve around loans and motor insurance, many questioned the reason behind the addition of MPPI to the market study. However, with the study now underway, Simon Burgess, managing director of Britishinsurance.com argued that lenders have continued to flout the rulings and attempt to hoodwink borrowers into taking deals that are unsuitable or unnecessary for them and their needs.
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Despite many in the industry expressing reservations over the inclusion of MPPI to the Competition Commission focus, Burgess argued that business practices within the market meant that the commission could not afford to ignore the sector. He said: “Research from the Royal Institution of Chartered Surveyors reveals that house prices have risen for 17 consecutive months.
Lenders obviously see this as the ‘green light’ to follow price trends and inflate their MPPI premiums accordingly. You’d think that with the recent interest rate rises and first time buyers struggling to get a foothold on the property ladder, lenders would be sympathetic to the needs of their customers and help them protect their mortgage repayments with affordable cover.”
He added: “I urge consumers to check their premiums. We all shop around for our home and motor cover, so why not mortgage repayments? I’m saddened by these findings.”
Burgess also urged the OFT and Competition Commission to indicate their initial findings, calling the study timeline, ‘unacceptable.’ However Shane Craig, managing director at Paymentcare, admitted that the commission, and regulator, needed time to look at all of the information and nuances of the market and the differences between PPI and MPPI. He said: “The CC is looking at competition issues and not regulatory issues such as selling practices and so on, which the Financial Services Authority is handling. For this reason it will take some time filtering through all of the information to reach the best informed outcome.”
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It is clear that MPPI has an important role to play in the evolution of the growing mortgage market. With levels of consumer debt continuing to increase, albeit at a slow but steady rate, coupled with a growing divide between house prices and affordability mean that protection is a must.
According to a report by financial analysts, Standard & Poors, the number of borrowers classified as non-conforming and in arrears rose from 17 per cent to 23 per cent during 2006. The sector also saw repossessions treble. With job security much less secure than a decade ago, and ever-increasing life expectancy predictions, illness is a far more pressing concern than
five, or ten years ago. As a result MPPI sold correctly has a pivotal role to play and can help borrowers obtain a sure footing when it seems everything is crashing down around them.
However, until the findings of the market study are announced, there is likely to be a prolonged period of uncertainty in the market, with borrowers unsure of the benefits of MPPI, and PPI, while intermediaries and lenders will have to highlight how the insurance sectors can serve a legitimate purpose in a market of change and continued nervousness and uncertainty.
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