View more on these topics

Richard Verdin on Protection

Selling accident, sickness and unemployment policies to borrowers has become quite a profitable activity for lenders and advisers. However the variety of benefits, terms and conditions has been confusing, to say the least.

In July 1999, the Council of Mortgage Lenders and ABI launched a new baseline specification for mortgage payment protection insurance which, unfortunately, has to count as one of the biggest missed opportunities for our industry over the last decade. The initiative resulted in little more than tinkering with the old ASU product. My dictionary&#39s definition of tinkering is: “Making unskilled or experimental efforts at repair.”

The ABI and CML should have looked at the risks inherent with borrowing against income and developed a standard that met the genuine need of customers. I do not want to criticise either body individually because they have both been forces for good. However, when they combined to solve this particular problem, the results were pretty poor. I cannot help thinking this was because important members of both organisations shared a financial interest in the continuance of ASU sales and the realities of these commercial ties were too powerful to overcome.

I think it is fair to say I am not the only one who is disappointed with the results of the review. Customers do not like the results, either. As proof, I offer the CML and ABI&#39s own statistics covering sales from the second half of 1998 to the first half of 2003. These show that 3,139,100 borrowers took out new ASU cover but the number of policies in force over the same period rose by only 986,000. The statisticians could have an absolute field day with these numbers because some customers will have moved, repaid their mortgages and so on – but two-thirds of them?

The conclusion I draw is that a large number of people are persuaded to buy these policies but most get rid of them quickly. My belief is that these policies were not designed with the customer in mind. Let us look at some of the MPPI baseline requirements.

•Baseline 6 – a benefit period of 12 months. Providers can offer longer terms, subject to individual claims, but in practice 12 months is the standard.

While this may be reasonable for unemployment, how can it be appropriate for accidents and sickness, which can result in being off work for much longer periods? This has to be a mismatch of need and cover. When clients take out a policy on a 20-year mortgage and realise the maximum cover is only 12 months, do they dump the policy?

•Baseline 11 – minimum period of notice for changes to the contract of 30 days for cover changes, premium rate changes, withdrawal/cancellation or if a substitute scheme is offered or 90 days if no substitute scheme is offered.

This allows insurers to price the product for sale, then unilaterally change the cover and/or the price or cancel the arrangement, giving as little as 30 days notice to the client. Unfair? In the legal sense, probably not. However… I applaud some of the principles sitting behind this underdelivery – to ensure that the self-employed are not excluded and to define what constitutes medical evidence. But surely we should accept that it is time to go back to the drawing board and apply some fresh thinking in search of a product that is truly valued by customers and, therefore, valuable to the retail outlets that fund these trade associations and the advisers selling the products?

As a footnote, with impending statutory regulation, I really hope that everyone who is advising their customers to buy these products are pointing out all the terms and conditions. If complaints are made to the ombudsman in the future, it is going to interested to see that the main features of the contract, including the exclusions, were pointed out to customers during the sale.

Richard Verdin is sales & marketing director of Direct Life & Pensions.


Citigroup MLM-type agents chase leads

US giant Citigroup is running a home-service business in the UK to generate protection and sub-prime mortgage leads. CitiSolutions, which launched in the UK in September, operates in a similar way to multi-level marketing. Self-employed reps work part-time to generate leads for UK financial services arm CitiFinancial and sub-prime lender Future Mortgages. The agents do […]

Widows chief says FSA using PI crisis to push IFAs into consolidation

The FSA is taking advantage of the problems in the professional indemnity insurance market to push IFAs down the path towards further consolidation, says Scottish Widows chief executive Archie Kane. Speaking to Money Marketing in his first interview since moving from parent company Lloyds TSB last October, Kane says he generally believes the regulator is […]

Verdin anger at &#39lost chance to shake up flawed ASU&#39

Direct Life & Pensions sales and marketing director Richard Verdin says the ABI and CML review of ASU insurance is the biggest missed opportunity in the industry in the last 10 years Verdin says root and branch reform of payment protection is clearly needed but all the trade bodies have achieved has been to “dust […]

Reregistration fee smoothes the way

I read with interest the front page comments last week from Cofunds marketing director Rick Andrews. Reacting to FundsNetwork&#39s £50 reregistration fee for IFAs consolidating client portfolios on to the platform, Mr Andrews asked whether such a payment to IFAs makes a difference? He might not think so but, if our recent experience is typical, […]

Retirement - thumbnail

(Another) downhill stroll — retirement planning

A report published this morning by the CIPD (CIPD Employee Outlook March 2015) provides yet more interesting data to the changing landscape of retirement planning. It should be remembered that we are in a period of genuine flux here given that the default retirement age was scrapped three years ago, and new pension freedoms come online in April. Both of these alterations will have a huge impact on how employees plan for their retirement.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm