Simon Burgess is managing director of Britishinsurance.com
Let me ask an alternative question to the above: ‘Should mugging be illegal?’ The answers to both questions are so obvious that the questions are redundant. Single premium mortgage payment protection insurance is pushed onto unsuspecting borrowers as a way of boosting the bottom lines of big financial corporations.
Some unscrupulous brokers also supplement their pensions with the huge commissions attached to this cover. It should have been outlawed years ago but the now disbanded General Insurance Standards Council was so beholden to big business it refused to believe there was a problem with the product even when presented with evidence.
It’s not uncommon for lenders to take more than 80% of a client’s premium in commission so their cut commonly runs into hundreds, if not thousands of pounds and contributes massively to shareholder profits. When added together it equates to over 5bn per year.
Pricing differences for MPPI may not be as wide as for PPI but costs can still vary by up to 40%. Greedy lenders have been guilty of ripping off consumers for too long. The vast majority of single premium MPPI policies have been mis-sold and it is easy to conceal the true cost of a policy within a mortgage. When MPPI is sold within a mortgage package a borrower often ends up paying interest on the premium for the term of the mortgage which can mean paying thousands of pounds in interest, decreasing the policyholder’s equity in the property.
And unlike a monthly premium, borrowers cannot cancel if a better deal comes along. This means if they are unable to work through disability or unemployment either part-way through the term or after the maximum payout, or sell their home and move into rented accommodation, they end up paying for cover that they didn’t need.
Steve Walker is director of Promise Finance
Single premium MPPI is a commodity bought and paid for over a fixed period of time and comes with certain advantages that regular monthly premiums do not have. Chief among these is the fact that a provider cannot withdraw a product mid-term.
Similarly, the price of the product is locked and cannot be increased by the provider as a result of bad claims history, for example. Not every borrower is in a position to afford a regular monthly premium so for customers under financial pressure single premium MPPI can provide valuable protection at an affordable price.
The advantage of single premium protection policies is that the policyholder can spread the cost over a long period of time. And because the insurance is linked to the product customers tend not to cancel cover when their finances come under pressure.
Of course, single premium products cost more over time but pressure from the Office of Fair Trading and the Financial Services Authority is likely to drive the cost down so it is more comparable with monthly products. That said, there is an argument that the base cost of single premium policies should be higher than monthly PPI as insurers are guaranteeing a price and are unable to extricate themselves from policies.
Single premium is more of an issue in the personal and secured loans areas and the profits made by lenders on insurance sales have helped to discount rates to consumers. But these issues surround product design, training and the sales process, not the concept of single premium.
Why dispense with a product that is bound to improve in time and that suits some borrowers at a time when the government is pushing for as many borrowers as possible to take out MPPI?