Dangers of linking loans to protection
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Adjusting mortgage rates to include life cover and protection would risk commoditising the insurance market, says HSBC.
At the Medicals Direct Pan-orama conference, it was suggested life cover, critical-illness and income protection products could be rolled into a mortgage sale, with the need for separate protection policies scrapped.
One delegate said: “Why have the banks never just slapped an interest rate tweak on a mortgage product and done away with protection products? Banks in other countries have already done this. The banks could have provided these products in a simple and easy way with virtually no underwriting and could have offered protection alongside their core lending products.”
HSBC head of life and protection Dennis Smith said if banks looked to implement this idea, the Competition Commission would not allow it.
He said it was endowment mortgage sales rather than the mortgage itself which generated much of the profit for banks and building societies. He suggested that adopting an “interest rate tweak” to incorporate protection would commoditise the policies in the same way that endowment mortgages did.
Smith said: “The trouble with tweaking interest rates to incorporate cover is that we may end up feeling frustrated that effectively we play a price game and have a horribly commoditised insurance product. It is the commodity nature of the sale that would restrict that idea.”
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