Educating your customers on MPPI
With clients stretching themselves to the limits to get on the housing ladder or buy a bigger house, Mortgage Payment Protection Insurance (MPPI) has a vital role to play.
But instead of sales of this valuable product increasing, they have been flat and we suspected it was because of negative press around Payment Protection Insurance (PPI).
While UK mortgage business has increased over the past year, MPPI sales have remained steady which means they have fallen in real terms.
PPI has been investigated by the Office of Fair Trading on the back of a super complaint from the Citizens Advice Bureau and we feared the general public mistakenly believes this also applies to MPPI.
We in the industry know the products are entirely different. MPPI offers clients protection against their mortgage payments, if they are unable to work, due to an accident, sickness or unemployment. PPI on the other hand can cover monthly repayments on mortgages, loans, credit and store cards or catalogue payments if you cannot work due to an accident, sickness or unemployment.
To test if this view of confusion was correct we decided we needed evidence so we carried out a survey of more than 1,500 consumers and 250 intermediaries. This explored how the PPI investigation has affected concerns and perceptions.
Almost half (47%) of all homeowners who were asked, are aware of the recent investigation into PPI and the current criticism of the product - a surprisingly high number.
But this level of awareness is matched by great confusion over what is being investigated. Worryingly, of the consumers asked, nearly 9 in 10 (87%) believe the criticism applies to all PPI, including MPPI.
Nearly half (49%) of all homeowners asked, who were aware of the criticisms, say they are now more cautious about taking out MPPI policies.
This is reflected in the experience of intermediaries with 68% saying consumers are now more reluctant to consider MPPI.
But on a positive note both intermediaries and consumers agreed that intermediaries are the best source to turn to for impartial advice on MPPI, with one in three (32%) consumers who responded, saying they would turn to their mortgage adviser. Less than a quarter (24%) would go to their bank or building society, while 21% would ask their friends or family.
In general intermediaries seem happy to take on this role of educator - with 37% saying it should be their responsibility to make sure consumers are fully informed.
Intermediaries have a duty of care to recommend clients take out appropriate cover to protect themselves should their situation change and they find themselves struggling to meet their mortgage payments.
The latest figures on arrears from the Council of Mortgage Lenders highlight the importance of having MPPI. It foresees 130,000 mortgages in arrears of over three months by the end of the year, up from its previous estimate of 120,000. The CML also predicts 15,000 repossessions in both 2006 and 2007 - up from an earlier forecast of 12,000.1
The industry should remember it has a responsibility to ensure they are doing what they can to protect borrowers.
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