I know a business that has just about the worst claims’ rate of any mortgage payment protection insurance distributor in the UK. Not normally something to boast about but they are rather proud of it because they think the reason is that they are just about the only people selling it fairly.The OFT is investigating MPPI and might take note, as should the FSA, as the retailer’s point has resonance beyond the MPPI market to all financial protection markets. Some background first. The firm in question trades nationally and is a keen advocate of income protection and often sells it with the unemployment benefit rider. Their client base is a bit above but not far off the national average. They are tied on the MPPI side, offering a very standard contract. They advise and so only recommend MPPI to those many people for whom IP does not work properly because their occupation or individual circumstances means they only get paid out if they cannot do any job, as opposed to their own one, which can make MPPI more suitable. Why is it that these proper professional people are the despair of their product provider because the claims paid out on the policies they sell currently run at 17 per cent more than the premiums paid in? No one ever thought of MPPI as cheap before and, last year, many of the UK’s clearing banks made over 10 per cent of their total profits on this cover. So, to most who provide and sell it, it is the most profitable mass consumer insurance they have ever seen. Only some 7 per cent of policies suffer a claim compared with 77 per cent of motor policies, for example, so this policy does not seem good value – except to the customers of this one retailer. Before I explain this anomaly, I should explain why this subject is so important, even to IFAs who never sell MPPI. It is that the reason why this adviser’s clients get outstanding value from their MPPI is down to the sales process being followed, not down to the product. By extension, what is wrong with the market is not the product but the way it is sold. You see, the poor claims’ record comes because this retailer only sells cover to those who can and might well claim on it. Surely all insurance should be sold this way. It is not what insurers call “selection against” because here the client and seller are not exploiting a product differential, they are selling a standard policy to normal people. So it is not selection against an insurer, it is a more honest and straightforward reason – it is customer service at its best. It is because this adviser rightly thinks IP the better policy so they recommend IP to all those who should have it. They then sell MPPI to those that IP does not serve well. That means only those who should buy MPPI do – the rest do not. So if MPPI was sold appropriately, it would be a valuable policy but because the vast number of sales in the market are to those who should have IP (and many to those who can make no claim on it at all), it is deemed a poor-value product. That is not the product’s fault. The problem with protection is not in its products, it is in the way they are sold. The OFT should ask itself why a retailer and provider cannot profit by doing the right thing for consumers. The answer they might find is because others trade unfairly, setting prices on the basis of misselling policies to gullible consumers. Go to it, OFT.
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