Many homeowners are unaware of the need to protect their mortgage payments. And providers are not very good at convincing them. Claire Veares reports
An essential part of the homeowning process is being able to keep up mortgage payments. If unemployment or sickness intervenes then mortgage payment protection insurance (MPPI) takes on the burden. But sales of MPPI insurance are not booming, which indicates there may be scope for growth. Figures from the Association of British Insurers (ABI) and the Council of Mortgage Lenders (CML) show two-thirds of those who took out new mortgages last year did not bother with MPPI and only 21% of all mortgage holders had MPPI cover.
These figures are an improvement on previous take up levels, which have risen since the ABI and CML developed minimum standards for MPPI. These were introduced for new policies in July 1999 and for all MPPI policies earlier this year. In these two years take-up rates of MPPI for new borrowers rose from 29% to 33% and from 18% to 21% among all mortgage holders.
Research carried out for the ABI earlier this year looked at consumer attitudes towards MPPI and other creditor insurance. It found policyholders were generally pleased with MPPI, but that many consumers were unaware of the practicalities of paying their mortgages if they were unemployed or unable to work.
ABI director general Mary Francis concedes that MPPI needs more publicity. "We must continue to improve communications with policyholders about payment protection insurance - both during and after the sales process - so we can be sure that those taking on big financial commitments like a mortgage or other loan make a properly informed choice," she says.
But it is not just a lack of awareness of the product that needs to be tackled, a realistic evaluation of the need for it is necessary. Those who consider MPPI appear still to associate it with an M for mortgage rather than with an I for insurance, making independent financial advisers (IFAs) the natural people to turn to for it rather than general insurance brokers.
Norwich Union's head of creditor development, Jill Elliott, says this perception is changing slowly. "In the past people never really thought about MPPI until it was mentioned by a lender. Customer awareness of MPPI is increasing and it does take more of an insurance feel,"he says.
But Elliott concedes the low visibility of many MPPI providers is a problem, especially compared with the opportunities traditional providers have. "Mortgage lenders are very well placed to explain the benefits and exclusions of the policy," she says.
"Some general insurance brokers do sell MPPI, but usually it is those that are also IFAs. Most brokers aren't into selling at the moment."
ABI spokesman Malcolm Tarling also reckons brokers view MPPI as a lost cause. "The general belief within the industry is that this insurance needs to be sold rather than bought. The expectation with this type of insurance is that people will only really consider it at the time they take out the mortgage."
As well as offering policies online, Goodfellows offers MPPI through intermediaries, mainly IFAs. Goodfellows managing director Simon Burgess agrees people tend only to consider MPPI when they are taking out mortgages. But he says sales of MPPI are low because existing providers have "lost the plot".
He says the pricing of MPPI policies needs to be realistic. "Unless that is addressed obviously they are not going to sell as much." He says the internet is the best place to buy MPPI as customers have a choice, but avoid paying commission to brokers.
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