Demand for Mortgage Payment Protection Insurance is still dwindling, but a new philosophy on debt waiver products could rejuvenate the market. Fiona Murphy reports.
Roger Humber, CEO at Protection Products Ltd, said: “Mortgage waiver is a relatively simple concept. It’s a promise from a lender to cancel mortgage payments if an event occurs, such as unemployment. The borrower has not missed a payment, they are not in arrears and they have breathing space to regain employment without damaging their credit rating in the process.
“Given time, I expect all mortgage products to offer a mortgage waiver feature. It is such a simple solution that is used to protect borrowers in New Zealand, Australia, Canada and the US. I’m only surprised it has taken the UK this long to finally adopt it.”
However, the difference with traditional MPPI is that mortgage waiver places the onus on the lender to build-in protection within their mortgage product, instead of a consumer taking out a separate policy.”
Meanwhile, such products were debated in Parliament in May, and were the subject of a feature in the May edition of COVER entitled: ‘The next steps in the protection gap’.
Hybrid PPI
Equally, another product making waves in the MPPI space is LV=’s hybrid plan Mortgage and Lifestyle Protection. This bridges the gap between a traditional MPPI policy and an IP plan, arguably combining the best features of both. Conner says this is a popular product that his firm arranges frequently for clients.
He explained: “We arrange a lot of LV=’s policy. It’s the one long-term IP in the market you can have unemployment cover on. For anyone who is an office-based worker, it’s the route to go down, because it’s a more professional product for a more professional person. The policy has 12 months of unemployment cover there as well, including accident and sickness payouts for the term of the mortgage.
“This policy runs for a term length, the insurer is contractually bound to pay out, whereas PPI-type policies are renewable annually: they can withdraw cover and change premiums. With LV= it is a protection policy with guaranteed premiums, if you also want unemployment cover.”
So why does this product seem different to anything else in the market? Conner said: “It’s unique. For compliance purposes, you have to say why you would recommend one product or another. What’s your research and what do you compare this against? You would say this provider is lower-priced compared with another, for example. With this product, there is nothing you can really compare
it with.
“It would be great if the others brought out a similar one. I don’t think that, following the recession, many insurers are making money out of unemployment insurance and I don’t think it’s an area in which they want to make money.”
Despite this reticence from most insurers, it’s clear that different ways of looking at protecting mortgages are on the increase. This is undoubtedly a good thing, because mortgages are likely to be the biggest debts most people take on in their lifetime.
With few avenues to turn to if consumers become sick, suffer an accident or injury, or are made redundant, they can run into problems paying their mortgages fairly quickly. A fresh look at MPPI is much needed, but will consumers take heed?
