Paymentshield's plans to launch mortgage payment protection insurance which incorporates the benefits of income protection has raised hopes a 'hybrid' product may solve some of the problems inherent in the industry.
IFAonline revealed last week Paymentshield is launching a product in late summer which aims to incorporate the benefits of IP – such as providing cover for longer than one year – while retaining the simplicity and lower premiums of MPPI.
IP is often cited as being too complex and MPPI is criticised for its short-term cover, so could a hybrid version combine the best of both worlds?
Roger Edwards, products director at Bright Grey, welcomes the news because he believes it is about time the industry stopped having the same arguments about IP over and over again.
“Rather than having the same arguments about whether the industry can solve age-old problems, the industry should look at products not from an IP-minus point of view but from a MPPI-plus point of view. MPPI is getting a slating from the regulator but it is easy to apply for and has less underwriting. Although it only pays for one year, I think addressing the problem from MPPI first is a good way to solve it,” says Edwards.
Although some IFAs may argue they do not want to sell a cut-down version of IP, Edwards points out they are not selling the full version at the moment anyway. He suggests it is the mortgage brokers at “the other end of the market” who would be more willing to build up what they are already selling.
“By increasing cover to five or eight years and retaining simplicity we could get a powerful concept. IP always falls behind life and critical illness (CI) cover, so if we can get a hybrid and get some cover rather than none, it would be worth the industry taking a look at it,” adds Edwards.
Nick Kirwan, protection market director at Scottish Widows and head of the ABI’s protection committee, says in order to meet a consumer’s needs well, a product needs to provide short-term unemployment cover and longer-term accident and sickness cover.
“Anything which extends accident and sickness cover under MPPI is a step in the right direction,” says Kirwan.
He believes the key to making protection attractive to consumers is designing products which are simple, easy to understand and easy to buy.
“Paymentshield’s proposition is something the industry will want to look at closely. We may look at it in the protection committee to see if there are lessons we can learn,” adds Kirwan.
But Alan Lakey, partner at Highclere Financial Services, believes MPPI has the potential to be as confusing as IP, particularly if the product is unbundled – as suggested by Paymentshield – because consumers have to choose whether they want accident, sickness and unemployment cover or unemployment cover only.
In addition, Lakey warns if an IP product incorporates ASU more consumers could be turned down for cover, as he has had cases where clients have been turned down over the number of redundancies made by their employer.
“The question comes down to the product’s premiums and if the underwriting is not horrible. I would have to be persuaded the product would add value,” he adds.
Lakey suggests developments by friendly societies like Pioneer, which has introduced the own occupation definition throughout its IP plan, mean a hybrid product is not necessary.
Kevin Carr, protection research manager at Lifesearch, also says: “If simplified IP was introduced it may be fantastic and I have no concerns in principle, but whether the product is right depends on its specific features.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email [email protected].IFAonline
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