But while consumers can do the maths for themselves there is still an issue of trust. The industry has to provide consumers with a product they are confident they can claim against while ensuring it is sustainable.
An MPPI policy is a temporary or short-term contract. The premium is determined by the claims experience of the insurer, as opposed to long-term income protection which has to take a view over a longer time and is priced accordingly. Actuaries have to plot what they think will happen based on historical data for both types of policies, but they are far more vulnerable to peaks and troughs in the short term. So insurers have to respond to a situation and make an assumption on the hoof. This unwieldy approach is far from ideal.
It’s time to align MPPI more closely with other personal insurances. We need to move towards underwriting at point-of-sale and creating annually renewable policies. This should cut the risk of big price fluctuations.
Equally important, if a policy is tailored to an individual’s risk profile it is less likely there will be a situation in which they can’t make a successful claim.
It’s not going to be plain sailing but it will be worth it if insurers deliver protection consumers have confidence in, and a product that can withstand the vagaries of the economic cycle.