Mortgage arrears: follow up - Treasury Contents


Written evidence submitted by the Association of British Insurers (ABI)

  The Association of British Insurers (ABI) welcomes the opportunity to submit a response to the mortgage arrears and access to mortgage finance follow up, which focuses on households affected by the recession and struggling with mortgage arrears or are at risk of repossession.

  The ABI is the voice of the insurance and investment industry. Its members constitute over 90% of the insurance market in the UK and 20% across the EU. They control assets equivalent to a quarter of the UK's capital. They are the risk managers of the UK's economy and society. Through the ABI their voice is heard in Government and in public debate on insurance, savings, and investment matters.

  We hope you find our attached comments helpful.

1.  EXECUTIVE SUMMARY

  We firmly believe that the right long term solution to protecting mortgage borrowers is for the Government to encourage people to be responsible when borrowing—that is, only borrowing what you can afford to repay from your current income, and taking out insurance against a loss of income in the future.

  Regular premium Mortgage Payment Protection Insurance (MPPI) has been helping to alleviate financial hardship of a number of households who would otherwise have been repossessed or struggling with mortgage arrears.

    — MPPI has a benchmark specification, agreed with insurers and in consultation with the government. This has underpinned the MPPI market since 1999 and has resulted in a robust product.

  There is significant evidence from Financial Services Authority (FSA) and the Financial Ombudsman Service (FOS) that sales of MPPI, in contrast to other forms of Payment Protection Insurance (PPI), have been of a high standard. MPPI should not be considered to share the same issues as PPI as evidenced by the following comparisons with PPI:

    — FSA thematic work and mystery shopping published in 2007 highlighted no systemic issues relating to the sale of regular premium MPPI policies.

    — FSA visits found that compliance tends to be better in the MPPI sector.

    — FSA found that the processes and controls around the selling of this specific product are likely to result in a more thorough assessment of the customer's demands and needs when arranging protection insurance.

    — The latest FOS annual report states: "... mortgage payment protection insurance (MPPI) ... [has] ... not given rise to significant volumes of complaints to the ombudsman service."

2.  HOMEOWNERS IN MORTGAGE ARREARS

  Regular premium Mortgage Payment Protection Insurance (MPPI) has been helping to alleviate financial hardship of a number of households who would otherwise have been repossessed or struggling with mortgage arrears. This insurance gives a degree of resilience to the financial shock of becoming unemployed and the threat of homelessness.

  During times of recession, when considering people's insurance needs, the natural focus is on job losses as large numbers of individuals and families are affected due to the rise in redundancies. However, in "normal" economic conditions the circumstances of losing your home as a result of redundancy, illness or the death of a breadwinner are equally tragic for the individuals and families involved. Accordingly, the industry firmly believes that Government needs to encourage people to be responsible when borrowing with protection insurance at all times.

  The Homeowner Mortgage Support Scheme is a helpful short-term measure in the current economic climate. However, in the longer term we are concerned that using public funds to help mortgage borrowers who have chosen not to take out insurance is likely to act as a disincentive to consumers taking out the insurance they need. Additionally, we are concerned that those who were responsible enough to take out an insurance policy on their mortgages may be tempted to cancel their insurance and rely instead on the government's Homeowner Mortgage Support Scheme.

  A benchmark specification for MPPI, agreed with insurers and in consultation with the government, has underpinned the MPPI market since 1999 by setting a series of standards across several key aspects of the policies. This has resulted in a robust product, evidenced by both the Financial Services Authority (FSA) and the Financial Ombudsman Service (FSA).

  The results of FSA thematic work and mystery shopping published in 2007 highlighted no systemic issues relating to the sale of regular premium MPPI policies. FSA stated that:

    "Our latest work has confirmed our earlier findings that sales of regular premium prime mortgage PPI, on an advised basis, are most likely to meet our requirements. We found that the processes and controls around the selling of this specific product are likely to result in a more thorough assessment of the customer's demands and needs when arranging protection insurance."

  This echoed the findings of the FSA's first and second phases of PPI thematic work published in 2005 and 2006 respectively. The Phase 1 findings published in 2005 stated:

    "From our visits, the sale of regular premium PPI with prime mortgages stands out as different from the other sectors. In general, we found that compliance tended to be better in this sector compared to the other sectors. From this, we have concluded that PPI selling practices in this sector do not represent a high risk to our regulatory objectives."

  The Phase 2 findings stated:

    "We excluded firms that sold regular premium PPI in the prime mortgage sector from our sample as they were found to generally meet our standards in Phase 1."

  In the latest FOS annual report it contrasts sales of MPPI (and other specific types of PPI) from other PPI products where sales issues have been the subject of a large number of complaints. It states:

    "... mortgage payment protection insurance (MPPI) and other forms of payment protection have not given rise to significant volumes of complaints to the ombudsman service."

  Additionally there is no evidence that the FOS uphold rate for regular premium MPPI complaints is out of line with any other (non-PPI) product lines.

March 2010





 
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