MPPI is dead, Long live MPPI

29 July 2009

The Tories first tried to roll back the welfare state with Mortgage Payment Protection Insurance.

That’s when Peter Lilley, then social security minister, got together with his friend Mark Boleat, then director general of the Association of British Insurers, to dream up with a scheme that hasn’t exactly withstood the test of time.

Now the spectre of state and private sector collusion (if you’re a cynic) or partnership (if you believe we live in the best of all possible worlds) is being resurrected in the guise of a report.

Published on July 27, by the Insurance Industry Working Group which Alistair Darling established last October to explore the challenges and opportunities facing the UK insurance industry.

The group is co-chaired by the chancellor and Andrew Moss, group chief executive of Aviva – a combination that doesn’t give you much hope if you’re either a tax payer or have an endowment policy with Aviva.

Sadly I fall foul of both categories which might just explain why I feel the group’s call for greater transparency, stakeholder inclusion and all the usual stuff about financial capability has a hollow ring about it.

And in the light of mortgage lenders’ experience with MPPI and the sustainable homeownership initiative I’m not confident that a call for “A partnership between the insurance industry and government to better manage risk in society and to explore options to increase savings and protection provision” is in the best interest of anyone, except of course the premium collectors.

But my blood pressure reached a new peak when I reached “the third theme of the Vision”. This is “the need for industry to act in partnership with the government to increase savings and protection provision, where appropriate, and help consumers manage financial distress caused by accidents, ill-health or old age.”

Well Aviva’s endowment policy won’t help me much in my twilight years and thanks to the decision to sacrifice savers on the altar of debt with a bank base rate of just 0.5%, the government has all but impoverished those it allegedly seeks to help in their retirement as well as risking the sustainability of the building society model which it claims to champion.

That said, the state provides almost 65% of the addressable ‘risk management’ market for retirement provision, accident, health care and income protection, with the balance underwritten by insurers – a situation where clearly opportunity knocks.

Thus insurers are “committed to helping the government address social challenges where commercially viable”. Perhaps informed by the failure of MPPI and ignoring the industry’s record on protection insurance generally, as well as its under achievements in the endowment market, the report goes on to explore the relationship between state and private provision.

Here it nudges Darling towards compulsory private insurance where motor insurance is the proverbial beacon of excellence.

So the report suggests that any shift of the balance from the public to the private sector is dependent on “greater consumer uptake of cover provided by the private sector”.

To spur the government in that direction it postulates that, “If, for example, the private sector increased its share of the addressable risk market by five percentage points, the corresponding saving for public sector risk management could be almost £17bn per year.

Where that would leave mortgage providers if it came to competition for funding is another issue but with compulsory MPPI and health and unemployment insurance there might be a slice in the cake for lenders too.