Pacific Life Re has re-opened the debate surrounding need for protection to be made compulsory in some capacity after the government unveiled its mortgage indemnity guarantee scheme.
It suggested that the industry should be urging government to insist borrowers take out a minimum level of protection to be eligible for it.
The scheme is a key part of the coalition's housing strategy and will see government underwrite mortgages up to 95% loan to value (LTV) on new build properties.
Lenders will provide loans with significantly lower deposits than the 20% or more that is typically demanded, but taxpayers could be liable for losses in the event that a home is repossessed.
The reinsurer believes that given the risks to the public purse, compelling a minimum level of income protection and possibly unemployment cover would be a fair trade-off.
David Heeney, chief marketing officer at Pacific Life Re, told COVER he was intrigued by the scheme.
"This looks an interesting initiative although not without its practical challenges," he said.
"The obvious risk is that borrowers will be unable to keep up repayments (particularly if interest rates rise at some point in the future).
"One way or another, this risk will largely be borne by taxpayers.
"Surely we should be lobbying for borrowers to be required to take out a minimum level of income protection, and perhaps also unemployment cover, to be eligible for this scheme?" he added.
The possibility of protection being made compulsory was raised earlier this year by PruProtect and prompted a spirited debate.
