The issue of Single Premium Accident Sickness and Unemployment (SPASU) has been a contentious and running theme during recent months, with many calling for the product to be withdrawn, as it goes against the central FSA principle of ‘Treating Customers Fairly’. Others have commented SPASU is unworkable, due to the rigidity of its structure, most notably within its non-conforming marketplace.
However, Thomas Reeh, chief executive officer at blackandwhite.co.uk, has come to the defence of the under fire product, stating SPASU has changed immeasurably since its inception, with the SPASU market very different to that anticipated by the market. He says: “It strikes me as odd that people who have very limited experience in the mortgage market, and more specifically experience in the non-conforming mortgage market pontificating about the so called evils of SPASU. I think the industry as a whole needs to assess the risks and benefits of SPASU with calm heads.”
With industry, and client opinion focusing on the downside of SPASU, Reeh argues the market has to adapt to the obvious needs of the non-conforming client base. “Non-conforming clients cancel their monthly Accident Sickness and Unemployment policies. Some major insurers have even withdrawn the product from sale because the persistency levels are so low. That’s what non-conforming clients do. It’s the same reason they cancel their life policies. Why sell a client a monthly policy when they have a demonstrated history of not being able to meet their monthly commitments? And guess what, they will cancel their monthly ASU policy at the time when they need it the most.
“There is no doubt that SPASU policies have come in for some major flak because of their poor flexibility and TCF unfriendliness. Agreed and rightly so. However what hasn’t helped is lots of people throwing their five pence into the ring, when to be frank, objectivity is needed and recognition of what has changed. There is a place in the market for SPASU, but not as we used to know it,” he says.
Reeh adds that the industry needs to work hard to ensure SPASU has a rightful place in the marketplace, with the FSA key to ensuring all regulatory requirements are being met. “The FSA has visited blackandwhite.co.uk and its SPASU sales processes were heavily scrutinised. They found no problems at all.”
A viable option
With blackandwhite.co.uk providing a SPASU option, Reeh admits the features available make it both sound from a regulators point of view, and a viable option for clients within the non-conforming market.
The SPASU product that blackandwhite.co.uk sells allows brokers to factor in clients savings and existing employer protection policies to reduce the cost of the policy, in line with the risk, as well as the option to defer payments by up to 12-months and be paid retrospectively in a lump sum. Accident, sickness and unemployment can also be sold independently of one another, based on individual client needs and the product policy can be changed mid-term, without penalty. Reeh adds: “The SPASU product we have establishes a premium using a risk matrix factoring in age and employment type, similar to the way life premiums are calculated. The true cost, including capitalised interest of the SPASU, is also disclosed pre-purchase to comply with ICOB 5 and TCF rules. All limitations on the product, pre-existing conditions and exclusions are disclosed pre-purchase.”
Duty to clients
From a different perspective Reeh argues lenders, most notably those involved within the non-conforming market, have a duty to ensure clients needs are protected. He says: “The stated objective of many in the mortgage industry is to ensure that their non-conforming clients are credit cleansed. So without any cover, they miss a mortgage payment or two or three and as a result they are then stuck with non-conforming rates for another year or two. All of a sudden that SPASU premium isn’t looking so expensive.”
With Reeh admitting the SPASU debate has led to an unfair ‘witch-hunt’ of the product, he concludes: “We are certainly not in business to prey on desperate clients, we have a process that’s FSA & TCF compliant and we sell products that are appropriate to individual needs. The industry has moved on, and some people need to move with it.” A sentiment shared by Peter Gladdy, director at Mortgage Direct, who on the issue of Payment Protection Insurance (PPI), Mortgage Payment protection Insurance (MPPI) and ASU argued that people needed to stop spreading the wrong message, about products that have a rightful place in the market.
