The insurance industry intends to increase the penetration of mortgage payment protection insurance from 19% to 55% by 2004. But such plans, to almost triple the number of home owners that have mortgage payment protection insurance, are almost impossible to achieve.
The number of people who have mortgage payment protection policies is pitifully low. Consumers take a very short-sighted view when asked whether they want mortgage payment protection insurance. They look at their circumstances in the near future rather than what their employment status or health might be over the duration of their mortgage.
They think that even if they do lose their job or become ill, the state will pick up the tab. But as we have seen over recent years, it is becoming harder to obtain such benefits.
Add to that the fact that the policies themselves are perceived to be expensive and riddled with small print, and you have the reasons why I think a significant increase will be so hard to achieve.
I believe that unless the industry adopts plain language and learns to communicate simply and effectively, the number of people willing to pay the extra premium will remain a minority.
If the campaign to increase MPPI take-up is to be successful, then the government must throw its weight behind the argument and start driving home the importance of personal responsibility and self-provision in taking out insurance.
Having carried out extensive research on behalf of major financial institutions into the state of the mortgage market, I find that, all too often, people feel rushed into making a decision on insurance. They find it easier to say no than to take the time to understand its benefits. Even if they do take out MPPI cover, it is often a knee-jerk reaction. People don't really know what they are buying and therefore might not be buying for the right reasons.
Moreover, some people who borrow to the limit of their resources are simply unable to find the extra money to meet the cost of the mortgage insurance. Instead they turn a blind eye and hope for the best.
The mortgage interview is already crammed with pitches to sell other financial products, such as household insurance, life and critical illness cover. In addition, very often bank and building society staff are not fully equipped with all the information they need, or have the in-depth knowledge and enthusiasm required to understand and therefore sell each product adequately.
Inevitably, this means the benefits of the policies aren't being fully explained and consumers are missing out on something that is very valuable and which could, in the event of a problem, provide support at a critical time in their lives.
Earlier this month the self-regulatory General Insurance Standards Council was launched with the aim of governing how general insurance is sold in the UK. It is designed to ensure the industry is better co-ordinated and, at the same time, develop a system to deliver effective consumer protection.
While this is a move in the right direction, GISC has a long way to go before it makes real progress. The whole MPPI industry needs to accept responsibility for the way products are sold and this isn't happening at the moment. Added to that, the products don't cover the needs of the policyholders.
According to a paper by Janet Ford, professor of housing policy at the University of York, one in five successful claimants still find themselves in mortgage arrears. This is because in many cases claimants only receive their first insurance benefit after 90 days, during which time they could be in real dire straits.
Consumers are telling us they want the benefits on day one, but as the logistics of the claims process do not allow this, it is the mortgage lenders' responsibility to inform consumers about the waiting period at the time of purchase.
As membership of GISC increases after the Association of British Insurers and Insurance Brokers' Registration Council codes are phased out next year, the likelihood is that restrictions will be placed on dealing with non-GISC members. This will be good news for consumers but more time and resources are needed to ensure that all lending staff are fully equipped.
My research work has shown that there is much, much more to be done before the MPPI industry stands any chance at all of doubling, let alone trebling the 19% take up rate.
Meanwhile, GISC needs to drive home the message that simple, effective policies that are easy to understand, and, at the same time, cost-effective, are the way forward.
With support and help from the government this can be achieved in the long term, but, unless it takes urgent action now, the 2004 deadline will be almost impossible to meet. It's now up to the insurers and lenders to work together to develop a MPPI product which fully meets consumer needs. If they rest on their laurels while profit margins are good, they are risking their future for short-term gain.
In fact, it would only take an outspoken consumer champion – or more likely the Financial Services Authority's reaction to the industry not meeting the 2004 deadline – to blow the lid on this sector.
