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Taking cover

With mortgage volumes flat the focus has shifted to adding insurance to brokers’ targets, but there is concern that creating a pressurised sales environment could lead to clients being sold cover they don’t need or want

At Mortgage Strategy’s Mortgage Summit in May one of the main topics of discussion was sales targets and hefty ones at that.

But in a market where gross lending has been flat, the focus now seems to be less on mortgages and more on ancillary products such as protection and general insurance sales.

One of the biggest firms in attendance told the assembled audience that intermediaries at its firm had targets of 100% penetration on GI and life insurance.

In other words, for every mortgage sold there was an accompanying protection and GI product sold as well.

This is certainly a sharp change in tack from the way the majority of brokers have operated over the past decade, especially at the height of the market.

Before the credit crunch hit in 2007 successful brokers had a long queue of customers eager to take their first step onto the housing ladder or remortgage and take out the equity built up in their property. The long and short of it was that insurance sales just slowed them down. When more money could be derived from proc fees compared with insurance commission, time was money.

This changed once the downturn hit and funding and demand evaporated. In such a harsh environment industry professionals immediately started to look around for other products to fill the gap.

“The push towards protection sales started about 18 months ago, when mortgages dried up and brokers began to look for alternative ways of maintaining their income,” says Mike Fitzgerald, sales and marketing director at Emba Group.

“Some went into debt management but smart brokers went into protection which apart from increasing revenue helps treat customers fairly by protecting them against adverse circumstances. We have found the protection side of things to be of great benefit to our business and most of our brokers are into it. The protection market is important for brokers, or at least it should be.”

So insurance has been a logical step for many and as Richard Verdin, director of protection at Aviva, explains, in many ways this is a return to the mortgage market’s roots.

“Some 15 years ago advisers only sold mortgages as a way of winning clients for other financial advice such as insurance,” he says.

“There was no fee for doing a mortgage or commission. Historically the mortgage broker grew out of the GI services sector. When the housing market grew a new type of adviser emerged, until then mortgage advisers were rare.”

Verdin says the first big change was mortgage regulation in 2004 and then regulation of the insurance market in 2005.

“This was a double whammy and elongated the compliance procedure, thus increasing the amount of time it took to give advice,” he says.

“After spending an hour going through the mortgage sale, customers didn’t have the appetite to stay in their seat for another hour and go through the insurance sale. So the mortgage broker would say they would do the insurance sale at another time, but it didn’t happen.

“Mortgage regulation created a demise in the relationship between mortgage and insurance sales,” he adds.

Making use of every opportunity is a natural survival mechanism and successful firms have gone from being single product organisations to once again offering a variety of products.

All intermediary firms are going through a period of adaptation, so it seems a logical step to target insurance sales, whether GI or protection. But could a target of 100% penetration be a step too far?

Jonathan Cornell, head of communications at First Action Finance, says a 100% sales target for insurance is certainly a stretch, but he argues that brokers should be having a conversation about protection with all their clients.

However, he adds that the key with any sales target is to ensure compliance is tight.

“If a company is going to have a 100% sales target when it comes to insurance they will need to have a strong compliance regime to monitor customer satisfaction and cancellation rates,” he says.

Verdin also argues that brokers should not be selling insurance just to hit targets.

“What good is a sale if the customer doesn’t want it?” he asks. “History shows us that when sales targets place too much pressure on advisers there is not a good outcome.”

It needn’t necessarily be a hard sale though. Martin Sincup, product manager for protection at LV=, agrees it’s important products are only recommended based on customers’ needs and that for any sales target mortgage advisers should have a good range of products they can recommend.

Typically he says these would include life cover, critical illness, income protection, unemployment cover and buildings and contents insurance.
“If they are targeted to recommend only one or two of these for an unrealistically high percentage of cases, then there is a risk that recommendations will be made based on product pushes rather than customer needs,” he adds.

The reason he says there is a whole suite of protection products is because everyone has different needs. Sincup gives an example of a customer who is single with no dependents as an illustration of the types of products that would be applicable.

“They only have themselves to worry about so they would usually need to protect their income if they are ill or unemployed so maybe income protection and unemployment cover would be appropriate for them,” he says.

“They don’t need life cover, critical illness is of limited benefit and doesn’t cover most of the reasons that would be likely to make them too ill to work, like back problems or stress or depression, plus they may not survive the critical illness. For someone with dependents however, it’s different and you might look at life cover as a priority.”

This is a theme picked up by the UK’s largest brokerage, Countrywide. Nigel Stockton, financial services director at Countrywide, says it aims to ensure all mortgage customers are offered life protection and general insurance. This is mainly because its estate agency customer base is orientated towards first-time buyers and home movers.

“Most first-time buyers will receive information about buildings and contents insurance, life cover, as well as critical illness and income protection insurance for the first time which can be daunting for them,” he says. “Our consultants are often shocked by customers’ lack of knowledge about these products. For example, many do not know that buildings cover is a compulsory requirement for most mortgages.”

Stockton says a common occurrence is that the breadwinner of the family hasn’t thought about the consequences if they cannot work due to an accident, sickness, involuntary unemployment or, worse, their death, in terms of how their family or loved ones would meet mortgage payments and pay bills.

The other issue he says is that often these are the first insurance policies a first-time buyer or home movers will have ever taken out.

“We ensure that we sell the products in a compliant and staged process, which includes many steps before committing the customer to these types of insurance,” he says.

“There is a definite customer need for protection and GI products. It is essential that each product type is presented and offered to customers, which we aim to do time and time again with all those who walk into our estate agency brokerages.”

Emba Group takes a similar strategy with insurance sales and Fitzgerald says a relaxed approach has worked best for its advisers.

“If you give staff strict targets, like some banks gave their sales teams with payment protection insurance in the past, it puts them under so much pressure that they will sell insurance to customers who either do not want it or cannot afford it,” he says.

“The business generated from our approach stays on the books for years, but hard sells tend to go off after a few years. If the cover is discussed in the right way and the client says they don’t want it, you shouldn’t sell it to them.”

Since John Charcol was bought out of administration by Towergate over a year ago it has looked to benefit from its parent company’s expertise in insurance sales and its mantra is now ’more than mortgages’.

But Ray Boulger, senior technical manager at John Charcol, warns that the number of insurance sales brokers achieve per mortgage sale will be chiefly dependent on their client bank.

“Firms that have more buy-to-let customers are likely to find cross-selling more difficult, as certain types of cover are not relevant to buy-to-let investors.

“For instance, illness does not impact on a landlord’s ability to pay their mortgage, so it is generally not appropriate to sell CI cover alongside a buy-to-let mortgage,” he says.

He argues it is inappropriate for firms to work on the basis that they should make a certain amount of protection sales per client.

But while GI is a relatively straightforward sale, that’s certainly not been the case with protection. In the UK the protection gap stands at a whopping £2.3trillion.

And any discussion of protection also brings up the subject of mortgage payment protection insurance. Technically it should come under the GI category but for many in the mortgage market, it’s the first thing that springs to mind when the subject of protection sales is raised.

But a variety of factors have impacted on MPPI sales over the past few years, not least of which has been falling gross mortgage numbers and negative publicity from the investigation and fining of banks over PPI sales.

Complaint numbers for MPPI have been low in comparison to PPI. But with the major banks now paying out billions in compensation to borrowers mis-sold PPI, from a brand perspective the damage has been done to MPPI.

Unfortunately it’s not known exactly how many MPPI plans are currently being sold or by whom. The Council of Mortgage Lenders has a list on its website providing a breakdown of MPPI policies sold compared to gross mortgage lending for each half of the year, along with how much was sold by brokers. But it stopped collating data for this in 2008.

The statistics it recorded from the second half of 1999 to the first half of 2008 make for interesting reading.

In the second half of 1999 there were some 951,000 gross mortgage advances compared with 289,500 MPPI deals, so almost 30% of all deals had a corresponding MPPI policy sold with them.

MPPI sales then peaked in the first half of 2002 and the first half of 2003 when around 36% of all mortgages had an MPPI sold with them.

But the data backs Verdin’s theory that mortgage and insurance regulation speeded up the decline in protection sales from the second half of 2003 the percentage of mortgages sold with a MPPI fell rapidly. By 2007 it had fallen to just 18%.

Although paradoxically, of those 187,000 MPPI sales in the second half of 2007, some 39% were sold via intermediaries, which was an all-time high.

There was a slight increase in MPPI sales in 2008 to 22% of gross lending prior to the CML discontinuing its collation of the figures, but by this point gross mortgage figures had already halved.

“A lot of brokers are running scared of MPPI because of its historic toxic issues they don’t want to be on the receiving end of a complaint,” says Kevin Paterson, sales and marketing director at Assurant Intermediary.

“So they would rather leave it alone. Some brokers have moved towards lifestyle products such as those from LV= and Aviva where accident, sickness and, in some cases, unemployment is wrapped up with a life insurance or critical illness type policy, which is a safer sale for them. Others have moved back to income protection, but underpinning all of that is a drop in mortgage volumes that will effect sales as well.”

Assurant has launched a product underwritten at point-of-sale rather than at point of claim to combat some of the concerns consumers and brokers might have.

So as aggressive as a 100% sales target might sound, with the protection gap widening it could be something that’s required to ensure more borrowers are properly protected.

Outside the private sector a number of institutions are starting to look at more forceful ways of ensuring borrowers are properly protected.

In 2008 the Joseph Rowntree Foundation recommended compulsory protection for all new borrowers, called the Sustainable Home Ownership Partnership scheme, that would be a joint partnership between lenders and the government.

And the Building Societies Association recently published a series of reports on providing safety nets for consumers. It is concerned that at a time when anecdotal evidence shows take-up of protection to be falling around 20% seems to be the average figure among larger insurers the government is reducing the protection it provides for borrowers who get into difficulty.

While it does not go as far as the JRF by recommending compulsory protection, the BSA says some sort of scheme where consumers have to consciously opt-out of protection could be the way forward, especially as this is something the government seems to be in favour of with pensions.

“Clearly there are challenges to developing that type of product to ensure it gets coverage as we wouldn’t want to put individuals into a scheme that didn’t fulfil their needs,” says Paul Broadhead, head of mortgage policy at the BSA.

But at a time when many people are struggling to get on the housing ladder, could this also be seen as an additional tax on buying a home?

“I don’t think consumers would see it as a tax on their mortgage if it was optional,” says Broadhead. “If you create a situation of compulsory insurance, there’s always going to be the challenge that people view it as a tax on buying a home and we wouldn’t support that.

“But if it’s optional I don’t think individuals would necessarily view it as that and they would understand the benefit of it. People have seen what’s gone on over the past two or three years and realise there is a need to cover themselves for all eventualities.”

Aggressive sales tactics leaving customers with expensive products that do not suit their needs, whether for GI or protection, is clearly only in the best interest of advisers and will do the industry a disservice in the long term.

But with growing recommendations for compulsory or semi-compulsory protection schemes, the change in focus many brokerages have made towards protection and GI is a step in the right direction, providing suitable advice is given when selling these products.

The steep decline in mortgage activity has meant many firms have not just had to work harder but smarter as well, providing products that can maximise their income.

It will be interesting to see what impact the focus on GI and protection in the broker sector which accounts for some 58% of all mortgage sales has on overall protection levels in the UK. And will firms continue to set sales targets for insurance once mortgage volumes start to increase?

It seems we will have to wait and see whether the mortgage intermediary market’s passion for insurance is a momentary flirtation or the beginning of a long-term relationship.

Targets are a recipe for disaster


Customers should be asked to sign a declaration that cover has been offered but they have declined it

Data from the Council of Mortgage Lenders published in May shows that the number of properties taken into possession in Q1 2011 was up 15% compared with Q4 2010. While the 9,100 properties repossessed was still 10% lower than the same period a year ago, it demonstrates that there is a need for consumers to seek protection insurance to keep the roof over their head in times of financial trouble.

I think it is true to say that in the past many brokers have been guilty of not raising the question of protection with clients during the mortgage sales process.

Even today, with the desire to drive more business from ancillary sales, penetration rates for protection products look disappointingly low. Perhaps the negative headlines that have surrounded payment protection insurance over recent years has had an impact, making advisers nervous about raising the subject with the clients, let alone selling such cover. In addition, there is no doubt consumer trust in financial institutions is struggling to recover in the wake of the financial crisis.

A recent report published by the Financial Services Research Forum at Nottingham University found a significant number of customers have faith in their financial providers only because they feel they have no choice.

The protection gap has been well documented, but is creating a pressurised sales environment the answer? Absolutely not – it flies in the face of treating customers fairly. I think a combination of increasing education and rebuilding consumer confidence is the way forward.

But companies are becoming increasingly aware of their exposure in the event that an adviser omits to cover protection needs during the fact-finding conversation – and it’s not just because of lost potential revenue.

There has been a worrying rise in the number of complaints from clients who, having a need for life or critical illness or income protection cover, have subsequently complained to the firm that they were never offered relevant options.

In my view, there is a simple way to address this. Advisers should cover the subject in the initial fact-find and if the customer indicates they do not want to pursue any options, they should be asked to sign a declaration confirming that protection insurance has been offered but that they declined the opportunity to progress with the adviser.

If firms are mandating the need to raise the subject of protection with their customers, this can only be a good thing. But if they are targeting sales, that is probably a recipe for disaster.

There is a belief that protecting just the mortgage does not go far enough


Roughly a million people buy life cover each year in the UK, of which around half is understood to be primarily mortgage related. But despite the decline in mortgage lending in recent years, sales of protection products have generally remained quite flat. Some providers have increased their sales slightly, while others are down a little.

Whether or not we see this as a positive or a negative probably depends on whether or not you see the glass as half full or half empty.

Protection products such as life cover and critical illness are rarely top of anyone’s shopping list, especially during difficult economic times, so for sales to be holding up is probably good news overall.

It also suggests some brokers may be revisiting older mortgage sales, where protection perhaps wasn’t sold the first time around, as
well as focussing on more than just basic life cover for the mortgage by considering additional products such as critical illness or long-term income protection.

A common trend at the moment is short-term IP which high street lenders are moving towards

It is perhaps unrealistic to sell protection to every client, mainly due to existing cover or possible underwriting issues.

But a common view of many protection experts is that protecting the mortgage alone, with life and even CI cover for example, isn’t going
far enough. Should the worst happen, while the mortgage may be repaid, this may not be sufficient if the family can no longer afford to
live in their house.

This is why products such as IP and CI cover can complement each other – one to remove the debt and the other to pay the ongoing bills and maintain the standard of living.

In fact, one of the more common protection trends in the mortgage market right now is the gradual move towards short-term IP instead of
traditional payment protection insurance and mortgage payment protection insurance, which some high street lenders are driving.

Some of the banks have adapted well with variations on the shortterm IP theme, while others have pulled the product range.

It also seems somewhat ironic that the industry is seeing a push towards simplified products, combined with a possible return to the
compulsory purchase of protection products on mortgage loans, when the Competition Commission’s ban on the sale of PPI comes into effect.

Put client needs at the forefront


If we try to look at the positives to come out of the recession, I believe it has helped advisers left in the industry realise that they cannot rely solely on mortgages for revenue. In fact, those who did have probably had to seek new pastures if they have not learnt how to diversify.

The subject of protection has always been close to my heart. Not only have I seen clients and friends who have been thankful they have cover in place but sadly I have also heard from those who have doggedly refused to take cover and then regretted this stance when their circumstances have changed.

From this perspective alone, the selling of protection is not so much a focus from a point of view of the benefits it offers businesses, but more to do with the effects of clients not having it.

That said, of late there has been a marked increase in both the presence and marketing regarding protection from providers and networks so clearly this is an area where all parties feel more can and should be done.

What is good to see from providers is a battle to be the best when it comes to the quality of cover. For too long there was an emphasis on price and it is great to see that advisers are being given the credit to differentiate based on more than just cost.

I think this always existed for the IFA community but was lacking for mortgage brokers. The issue of targets and specifically advocating selling one policy to every client is a worrying one.

What is good to see from providers is a battle to be the best when it comes to the quality of cover

I would be lying if I said that I didn’t want clients to buy as much protection as needed but to set targets per client misses the point.

For some customers they will need to consider all aspects of cover, for others there may be no requirements at all.

The key to this is a comprehensive fact-find to establish what they already have, their attitudes to certain eventualities happening in the future and then to advise them on what they need and, more importantly, why. I once read that no-one ever buys anything on the basis of what they stand to gain from doing so. We instead buy because of what we stand to lose by not doing so. This should be the focus when discussing protection with clients.

Financial hardship that could have been avoided can lead to further loss of health, relationship, assets and self-esteem.

It can even cause tension with other family members as I have seen with one of my clients who contracted cancer.

The selling of protection is important for all mortgage intermediaries but I would strongly suggest that only if clients’ needs are at the forefront of all sales.



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