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Understanding the opportunity in selling Mortgage Payment Protection Insurance (MPPI) is sometimes a challenge when customers are only really concerned about their mortgage. This month we examine the opportunity for intermediaries in selling MPPI in a virtually untapped market.
The market for MPPI is bigger than many might think. Of the estimated 24 million payment protection policies in force in the UK,1 approximately 2.6 million are Mortgage Payment Protection Insurance policies.1
Yet, despite the fact that over 70% of all mortgages sold in the UK are through intermediaries,1 penetration of the MPPI market does not reflect this.
An untapped market is now even easier to access
We estimate that by not selling MPPI, you could be missing out on £45,000 or more over the course of five years.2 This is based on selling twelve mortgages per month and one in three of those mortgage sales with MPPI.2
Furthermore, we make the process simple and hassle free, allowing you to benefit with relatively little admin. And since these products offer renewal commission each year, the effect is cumulative. By selling MPPI policies, you are potentially building a significant annual income stream, in only a short time, with little effort.
Despite the fact that the mortgage market continues to grow,3 the strength of the direct to consumer market, and the pressure on mortgage procuration fees in general, means that intermediaries should be capitalising on every opportunity that presents itself in a mortgage sale. And that includes MPPI.
Many intermediaries view protection and other general insurance products simply as add-ons that are only made available when customers ask for them. In fact, some would argue in today's world, with consumer debt at record levels,4 it's your duty of care to advise them on their options, because it is vital for borrowers to consider some type of adequate financial protection. You just have to look at the statistics. Recent figures released by the CML indicate that there were 29,991 repossessions in Q3 2005 and 1.53 million people unemployed.5
Given that an estimated 2 million people would be penniless within a week if they lost heir jobs, and a further 4 million would be on the breadline within a month, anyone with a mortgage should think seriously about taking out MPPI.6
As an intermediary you will know that many people don't stop to consider the 'what if'. Often, people don't believe anything will happen to them, and if it does, then the State will help look after them.
In reality, State assistance is minimal. Despite the fact that successive UK Governments have actively encouraged home ownership amongst the population, current mortgage interest income support legislation is limited,7 providing:
- No assistance where there are joint borrowers and only one income is lost
- No assistance where the claimant has savings of more than £8,000
- No assistance for the first nine months of any period of unemployment, sickness or absence from work due to an accident
- Assistance with only the interest element of any mortgage, no capital repayments, endowments or insurance premiums qualify
With clients' ever-changing circumstances, planning for the unexpected is vital. Mortgage Payment Protection policies, when sold correctly, offer homeowners invaluable protection.
In fact, the UK Government considered it so important that it introduced a target of 50% penetration of MPPI amongst homeowners.8
Suffice to say that this target has not yet been met, with 23% having been achieved. Yet the market is still worth a staggering £6 billion per year.1
Is your business missing out on a share of it?
Source1 - Payment Protection Insurance Industries Appraisal, OmniChek, September 2005.
Source2 - Paymentshield, April, 2006 2006 Renewals on previous year business with attrition of 40% over the 5 year period and increase in new business premiums of 2% per annum.
Source3 - Bank of England Lending to Individuals, January 2006.
Source4 - Bank of England Lending to Individuals, February 2006.
Source5 - Council of Mortgage Lenders, 2005 possession figures, January 2006.
Source6 - Prudential research quoted on thisismoney.co.uk, January 2005.
Source7 - Department for Work and Pensions, April 2006.
Source8 - Council of Mortgage Lenders, Sustainable home-ownership initiative: an overview, January 2006.