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MPPI frog could turn into clients’ prince

While brokers have had to face what has probably been the most challenging period of their trading lives over the past 12 months, spare a thought for accident, sickness and unemployment insurers.

Hard to do, I know, particularly in light of yet more damning headlines in the nationals, but bear with me. They have had to cope with the Competition Commission inquiry, which has led payment protection more difficult for some, although I would argue that it opens the door wider for brokers.

With the recession in full swing and unemployment reaching new heights, they now have to deal with the number of claims going through the roof. In fact, nearly every factor ASU insurers take into account when rating their products has changed considerably over the last 12 months.

Several ASU providers have withdrawn from certain sectors of the market altogether. Others have taken less drastic steps, but to ensure that they can successfully manage the situation, they are now constantly reviewing their prices, distribution channels and terms and conditions.

Some of you may have seen insurers tightening their terms and conditions, for example providing a stricter definition of what ‘prior knowledge’ constitutes with regard to redundancy notice.

Others have introduced restrictions such as only making mortgage payment protection insurance policies available to consumers taking out a new mortgage or remortgage and not selling it as a standalone product.

I expect that a number of you have experienced providers who have re-rated their policies and increased their prices. I have no doubt there will be much more of this over the coming months.

What does all this mean for brokers? It must sound like a product to avoid like the plague. But I think it actually presents a golden opportunity for brokers to build greater client loyalty by finding better and more appropriate deals for them while ensuring they have protection that has never been needed more.

If you know certain clients are going to receive a re-rate letter from their underwriter, it is the perfect time to step in and review their policy.

The drastic rate reductions by the Bank of England over recent months have had a positive impact on clients with tracker deals, as they have seen their monthly mortgage repayments reduce by literally hundreds of pounds in some instances.

As MPPI premiums are quoted based on every £100 of cover required, this could mean that some clients are paying over the odds.

Monthly MPPI policies can be changed to reflect any increase or reduction in the monthly mortgage repayment at any time during the life of the insurance policy.

For example, based on a premium covering a £175,000 repayment mortgage with comprehensive ASU insurance – 24 months back to day one cover – and calculated at 3% interest rate, customers could see their monthly premiums fall from £61 per month to £39.60. Right now everyone is looking closely at their household budgets and many could be tempted to cancel their MPPI cover, especially if the insurer is presenting them with further price rises.

In the current climate, MPPI is simply protection they can’t afford to be without. Brokers could help clients keep their safety net while ensuring they are only paying for the cover they need.

Equally, reviewing the underwriting on your clients’ ASU policies may also reduce their premiums or at least reinforce the value of the sale by making sure that it is relevant to their circumstances.

One in five people in the UK – that’s about 5.8 million – work in the public sector. Public sector work is thought to pay less than the private sector but on the other hand, it usually offers great benefits such as job security, flexible working, solid pension, good unemployment and accident and sickness pay.

The relevance of the public sector benefit to brokers comes when researching suitable ASU policies and in the current times, the public sector is not immune from cutbacks.

The de facto standard for most ASU policies is 30 days back to day one cover. But public sector workers often have three, if not six months, on full pay if they are made unemployed or cannot work due to accident and sickness.

If they took out a 30-day back to day one policy, they would not be able to claim until pay from their employer ceased.

Clearly, it makes sense to take out an ASU policy with a longer deferment period, which is less expensive and still provides the cover they need. This could save customers more than a hundred pounds per year – enough to pay the car tax for a small car.

The same applies to any private sector worker who has a good benefits package. Many people with senior jobs also have three to six-month notice periods and accident or sickness cover – why should people pay for something they can’t claim for?

There is still a lot of confusion around MPPI and income protection policies. It is more important than ever for brokers to be contacting clients to see what protection they have and whether there is a more appropriate policy that could save them hundreds of pounds.

Brokers are ideally placed to provide the advice consumers so desperately need in this dire economic climate.

MPPI may look like a frog of a product but for those losing their job, it can turn into their prince.


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