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With income protection insurance prices under upwards pressure and questions being asked about the medium-term sustainability of the contract, it should not come as a surprise that advisers are re-evaluating their relationship with maximum-replacement options.
Thursday, June 30th 2022, 9:34AM
by Russell Hutchinson
Mortgage insurance cover, or the household expenses versions for those renting, are being selected more and more often by advisers. Some of the factors behind the shift are more obvious than others.
We think the main reasons are these:
First, price, plain and simple: full income protection cover is now very expensive for the middle-market. It is complicating to the sales process to actively work out the affordable package with a client – carefully calibrating that for their budget. A good number of advisers are choosing just to quote mortgage and expense cover as a natural ‘budget’ option, given its lower replacement ratio.
Then underwriting: if you have had difficulty getting the full income protection cover issued for your self-employed clients recently but found mortgage cover with the lower replacement ratio more easily accepted, then you have also found a solution – if only a stop-gap – for the challenges being felt by many applicants.
Third, ACC. A toughening stance on claims by ACC and the no-offset approach taken in mortgage insurance makes this a good defensive contract to own. Now, if you do not know if ACC will pay the claim, it doesn’t matter so much with mortgage cover, as the claim calculation is untouched.
Fourth, interventionist governments. Australian regulatory intervention in their IP market is a concern. NZ Government intervention in our market is also a possibility with a form of redundancy and IP cover talked about – although now the talk is more about delaying the implementation of that due to public concern about the cost. Meanwhile, the financial adviser has a solution that broadly meets both criteria and is buyable right now.
Lastly, advisers are better at this than bank sales staff. Housing crisis notwithstanding, clients still care about being able to keep living where they want to keep living, where they have friends, work, and their kids go to school. Unlike bank sales teams who seem to have been hit for six by the slow-down in first home loan buyers and concerns about regulatory risk, independent financial advisers have been much more flexible – and continue to access this market with expenses coverage.
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