Selling MPPI is challenging but necessary, argues Kevin Paterson, sales and marketing director, Assurant Intermediary

As we approach the General Election, an air of uncertainty hangs over the country. Will this dissipate on 7 May when the result is known? Somehow, I doubt it. No one really knows what fiscal policy will be implemented to attack the public debt situation and so no one really can be sure of job security, whether they’re in the private or public sector.

Sure, there has been an apparent stabilisation in unemployment figures. Figures released in March showed that the jobless rate had fallen to 7.8%. However, on the flipside, the number of long term unemployed – those out of work for more than a year – rose to 687,000. It seems that many private sector workers have taken a hit on earnings or accepted reduced hours simply to stay in work. Sadly, there is still a chance that their sacrifices may be in vain. There will undoubtedly be job losses in the public sector as the new government sets about tackling the budget deficit. The employment picture for the next year looks even more fragile than the economic recovery.

The current climate dictates homeowners need mortgage payment protection more than ever. We know that cost is often cited as the main reason that they don’t buy it. However, with the unprecedented levels of claims that insurers have experienced relating to unemployment since the first half of 2008, premiums have increased, potentially deterring even more homeowners from purchasing this type of protection.

Did insurers have to increase premiums at a time of economic hardship? Some have argued that the depth of the recession was foreseeable as the credit crunch really took hold, and that insurers should have acted far sooner so that rises would not have been so steep. I would argue that it is to the insurers’ credit that they managed to maintain premiums at a consistent level over a long period notwithstanding the worsening economic climate.

As well as a significant increase in the number of claims, there has been a concurrent increase in the duration of those claims due to the length of time it is taking those who have been made redundant to find alternative work. All insurers – whether motor, household or creditor – are required to maintain appropriate levels of capital and adopt a prudent approach to their business in order to be in a position to meet their ongoing commitments to their policyholders. They have a duty of care to ensure funds and reserves are sufficient to pay out all valid claims.

So does MPPI still represent a valuable safety net? Or would homeowners be better off making regular savings into an interest earning account?

Understandably, any increase in cost is unwelcome, particularly in the current economic climate. Still, I do believe MPPI continues to represent an effective way for a homeowner to protect their mortgage payments in case the worst happens. Let’s look at an example of the cost to the homeowner and the potential benefit.

If it costs a policyholder £81.84 a month to cover a monthly benefit of £1200, the total premium paid over 12 months would amount to £982.08 – almost a fifth less than one month’s benefit. However, if the policyholder were unfortunate enough to be made redundant or to have unable to work due to an injury or illness, then a policy of this type could potentially offer up to £14,400 in benefits over a 12-month period. While the policyholder is required to continue paying their premium during a claim, as is the case under any type of insurance paid monthly, the total benefit still represents almost 14 times the value of the total premium paid. While you can’t compare MPPI to a savings account directly, if there were an instant access account that could deliver as much value then I would shift my life savings there straight away.

I realise that selling MPPI is not without its challenges. But in the current climate, setting out the cost-benefit analysis in black and white to your clients may help them at least make a fully informed decision.