| THERE has been so much written in the past few | | | | course, the selling broker would be paid his share |
| months about payment protection insurance it has | | | | of the total premium.Single premium ASU is not |
| all become a little confusing. Most of what has | | | | really that different; it is just that a lot of |
| been written has been very negative, indeed | | | | commentators have got all bent out of shape |
| dangerously negative - witch-hunt proportions | | | | about the commission payment and not the |
| even in some quarters. A mortgage magazine | | | | cover itself.This problem has been further |
| even ran a campaign to have single premium | | | | magnified by lots of people throwing their |
| accident, sickness, unemployment banned.Amid all | | | | twopence into the ring when, to be frank, |
| the chest beating and promotion, some clarity is | | | | objectivity is needed and recognition of what has |
| desperately needed. Without relevant PPI being | | | | changed. There is a place for single premium ASU, |
| offered to customers, there is an even greater | | | | but not as we used to know it.What if the |
| risk of one of the fundamental objectives of the | | | | mortgage industry had a single premium ASU |
| FSA not being met - and that is protecting | | | | product that had the following features:- provided |
| consumer interests.The PPI witch-hunt has also | | | | no quibble pro-rata refunds if it was cancelled; |
| lumped together mortgage payment protection | | | | - where the premium was established using a risk |
| insurance and single premium ASU. These | | | | matrix factoring in age and employment type - |
| products are, of course, all very different. Most of | | | | similar to the way life premiums are calculated; |
| the Office of Fair Trading's concerns re- volved | | | | - where you can sell the accident, sickness and |
| around the potential mis-selling of PPI related to | | | | unemployment components independently of one |
| consumer and revolving credit sales, not | | | | another based on the customers' individual |
| mortgages.In November 2005, the FSA published | | | | circumstances; |
| a report detailing its findings about the sale of PPI. | | | | - a product where you can factor in the client's |
| This was backed up with mystery shopping of | | | | own savings and existing employer protection |
| various firms involved in the sale of PPI - that | | | | policies to reduce the cost of the policy in line with |
| goes beyond mortgages to other companies that | | | | risk; |
| offer revolving lines of credit, store accounts and | | | | - where you can defer the benefit payments by |
| unsecured loans. It was much broader than the | | | | up to six months and be paid retrospectively in a |
| mortgage industry alone and, given the mortgage | | | | lump sum; |
| industry has been regulated by the FSA for some | | | | - where you can change the policy mid-term, in |
| time now, it has taken a disproportionate amount | | | | other words the amount of cover can be |
| of flak.ExperienceIt does strike me as odd that | | | | increased or decreased or names on the policy |
| people who have very limited experience in the | | | | can be changed without penalty; and |
| mortgage market - and more specifically | | | | - where the true cost including capitalised interest |
| experience in the sub-prime mortgage market - | | | | of the single premium ASU is disclosed pre |
| have been pontificating about the so-called evils of | | | | purchase - to comply with treating customer fairly |
| single premium ASU.The mortgage industry as a | | | | and Insurance Code of Business 5 rules. Indeed, all |
| whole needs to assess the risks and benefits - | | | | the product limitations, pre-existing conditions and |
| yes, benefits - of single premium ASU with calm | | | | exclusions are disclosed pre-purchase.What if this |
| heads, because things have moved on.Fact one. | | | | product existed and its makers had worked |
| Sub-prime clients cancel their monthly ASU policies. | | | | closely with selected players in the mortgage |
| Some major insurers have even withdrawn the | | | | industry to ensure all regulatory requirements |
| product from sale because the persistency levels | | | | were met and exceeded?Well, I hate to say it |
| are so low. That is what sub-prime clients do. It is | | | | but that is the product that one broker has sold - |
| the same reason they cancel their life policies. | | | | and the intermediary has their FSA visits and, as |
| That does not mean we should stop writing life | | | | with others, single premium ASU and its sale |
| business because we would be leaving customers | | | | processes were heavily scrutinised. No problems. |
| and their families exposed.There is a fundamental | | | | Perhaps some of the single premium ASU |
| issue here. Why sell a client a monthly policy when | | | | providers may wish to read the above product |
| he has a demonstrated history of not being able | | | | features just one more time.ProtectedLet us look |
| to meet his monthly commitments? | | | | at another angle. Surely lenders, particularly |
| And guess what? Fact two: sub-prime clients will | | | | sub-prime lenders, have a duty of care to ensure |
| cancel their monthly ASU policy at the time when | | | | that their clients needs are protected. |
| they need it the most. The potential ramifications | | | | The stated objective of many in the mortgage |
| for the IFA/mortgage broker are dire should he | | | | industry is to ensure their sub-prime clients are |
| be unable to demonstrate that he offered his | | | | "credit cleansed".So without any cover, they miss |
| client the option of either monthly or single | | | | a mortgage payment or two or three and they |
| premium ASU and it has subsequently gone pear | | | | are stuck with sub-prime rates for another year |
| shaped for his client.Some brokers detail the costs | | | | or two. All of a sudden that single premium ASU |
| and benefits of ASU in the suitability letter and | | | | premium is not looking so expensive.Things can |
| document in that letter if the client has chosen | | | | and do go wrong, and it is our job as qualified |
| not to take it up. Some go even further. For | | | | professionals to ensure our clients' needs are |
| clients who cancel their policies downstream, | | | | protected.The Association of Mortgage |
| some brokers send a disclaimer ensuring they | | | | Intermediaries has now responded to the FSA's |
| know what they are cancelling and detail the | | | | request to address its concerns about PPI and I |
| ramifications of having no cover.It is cheaper to | | | | am sure that will be the start of some more |
| do that than risk the potential of attracting a | | | | sanity in the discussions surrounding its sale.Single |
| lawsuit, and worse still drawing bad press to our | | | | premium ASU is not about preying on desperate |
| business and brand. | | | | clients. One broker has developed a process that |
| There is no doubt that single premium ASU | | | | is FSA and TCF compliant and sells products that |
| policies have come in for some major flak | | | | are appropriate to individual needs.There is no |
| because of their poor flexibility and TCF | | | | doubt that the adverse publicity surrounding PPI |
| unfriendliness.CommissionAgreed and rightly so. | | | | sales has eroded not only consumer confidence |
| One of the key issues at play here is the | | | | but the confidence of IFAs and mortgage brokers |
| seemingly large commission payments made for | | | | to sell insurance cover that few could argue |
| single premium ASU.Let us look at that issue in | | | | against.Most of all, it is important to note that the |
| another context. What if a motor insurer offered | | | | industry has responded and moved on. Some |
| a three-year product and guaranteed not to | | | | people need to move with it.John Smith writes |
| change price over the term with no inflationary | | | | articles for blackandwhite.co.uk loans and |
| creep? What if you got a further discount for | | | | mortgages, offering Bad Credit Loans. |
| paying that policy upfront as a lump sum? Of | | | | |