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Robert Sinclair: Loan-linked insurance cover is never free

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I am sure efforts to encourage the British population to insure itself are based on good intentions but there is a nagging doubt in my mind.

Perhaps it is because there is no such thing as a free lunch. So free insurance cover linked to a loan is never such as someone, somewhere, is accepting liability. I worry it may be little better than PPI, which for many years subsidised cheap loan rates before being milked for profit.

The FCA now has many hats to wear but its simplest is to limit consumer detriment which within the regulatory rules is about firms products and promotions being clear, fair and not misleading. European regulators in particular have been cautious about bundling products, hiding the real costs. So dressing protection up as a free add-on must be seen as a step backwards in an industry which has to regain consumer trust.

The industry has a number of problems. Too many advisers and consumers perceive the protection application process as complex and invasive, products are too bound in legals and lack simplicity. 

Finally, despite the statistics, consumers’ believe claims to be  fraught with difficulty. Even a successful claim is often paid out at less than the insured amount as insurers use various techniques to minimise their costs.

So, despite insurers continuing to develop products, there is a considerable perception gap between what the industry thinks it sells and what the customer sees. 

Hiding behind free product and claims statistics will not change this. Until we overcome these hurdles I do not see enough consumers buying into them.

Robert Sinclair is chief executive of the Association of Mortgage Intermediaries

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