But many insurers are looking to present lenders with solutions as to how to market PPI in the ’new world’ products which have turned the underwriting process on its head to create a policy tailored not only to the individual’s personal circumstances but also to their risk profile. Others have started to address the sales process to accommodate the seven-day prohibition period.
I doubt that there is going to be a single way forward. Just as PPI has evolved from the one-size-fits-all proposition of the 1970s, I believe that the market is going to see a number of different propositions being developed. These will meet the needs of the distributor while ensuring they comply with the specific remedies introduced by the Commission when the Order is implemented next year.
Free of charge PPI
Some could choose to offer their clients a more holistic approach to protection. This could result in income protection forming part of a personalised portfolio for the individual that protects their financial commitments as a whole rather than being linked specifically to one credit product such as a mortgage. The downside, perhaps, is that it could marginalise certain demographic groups who are unlikely to have the spare cash to meet the increased premiums of such an approach.
Others could adopt PPI as a risk management tool and look to provide it free of charge to the consumer as part of the credit offering. This does have commercial implications of course, and could see the distributor concerned passing on the cost in some way to the consumer, possibly through increasing the APR. Another option is to decouple PPI from the credit vehicle completely and move to selling stand-alone income protection that covers a percentage of salary rather than specific repayments. This would, of course, involve a proactive marketing campaign and that naturally has significant budget implications. From an insurer’s perspective, this scenario also presents the likelihood of anti-selection as customers are likely to actively seek cover as they believe their risk of, say, unemployment is greater.
Clearly, each distributor has to make its own decision as to the most appropriate route to market. But I would caution the danger of ignoring one key fact that the Commission itself has acknowledged. Protection is not something that consumers have on their shopping list. Unless they feel at risk, they are unlikely to shop around for cover no matter how easy it is to do so.