PRESENTER: The mortgage protection market often focuses on solutions which only protect clients in the event of death, but over the term of a typical mortgage a person is more than twice as likely to suffer from a life changing serious illness than they are to die, so the need for comprehensive mortgage insurance is clear. Well, why is it still not well known? Well, to discuss that I’m joined here by Andy Philo, Director of Strategic Partnerships and Employed Distribution at Vitality, and by Michelle Brook, Managing Director of Brook Financial Services, part of the Mortgage Advice Bureau.
There are three learning outcomes: firstly the need for mortgage protection, and the main barriers to getting it; second how to keep a client engaged in discussing mortgage protection having gone through a lengthy mortgage conversation; and thirdly if the rewards and benefits are a worthwhile incentive for taking out a protection policy. But first let’s go over to Andy Philo to learn more about the mortgage market, and the need for mortgage protection.
ANDY PHILO: The UK is very much a nation of homeowners. And around about 23 million homes in the UK and approximately two thirds are actually in home ownership. So that means an opportunity for the mortgage market. In 2018, it’s estimated that there was over £270bn of new lending. There has been moderate growth in that market over the last 12 months of around about 5%. More first time buyers are returning to the market, and if you go back 10 years that was the last time they were reaching record levels, higher than in 2018. Part of the reason for that there’s been an attraction of low interest rates in the market. And although there’s a shortage of new affordable housing, we could do more, people are finding property to buy. They’re recognising now that it’s cheaper to buy than it is to rent and we very much a nation of homeowners. That hasn’t changed and I don’t suspect it will.
The first time buyers are getting older. They’re saving for longer, because they need a bigger deposit. The average age now of a first time buyer is around about 31, the average deposit is around about £32,000, and in fact if you look in London the average deposit is around £110,000. There’s 100% mortgages available; lenders are actually wanting to lend money. The dreaded Brexit word is on people’s mind and the economic uncertainty that brings, but the British people are very resilient, and they’re actually finding ways to find property and get on that housing ladder. Around a fifth of all transactions are actually remortgages and that’s the highest in a decade, so people are actually staying in their property, maybe extending rather than actually moving house. A pleasing stat is that over two thirds of business is done through the intermediary. I don’t expect that to change, I expect it to grow even further. That means there’s an opportunity for protection advisers to make sure that clients are protected. And what we actually see is around about 30% of clients don’t have any protection at all. This is really disappointing. And particularly when lending is easy we actually see the protection sales go down.
Part of the reason is that process is long. It can often take two or three hours for a client to go through a mortgage sale and clients can be fearful of getting into another engagement where they’re talking about protection. As you can see from this slide, more people are buying homes, but not necessarily securing their futures. There’s 11 million households in the UK with a mortgage and around 50% of them don’t have any life insurance. And as I say I think part of that reason is because the mortgage application process is just too lengthy. So therefore there’s an opportunity to provide comprehensive professional advice. And as advisers we have a professional and a moral obligation to make sure our clients are protected. We want to help them get in the home, stay in it and protect their loved ones from losing it as well.
PRESENTER: Well, Andy, looking at the stats you mentioned in your piece there, why do you think more people aren’t taking out mortgage protection products, what are the barriers?
ANDY PHILO: I think there’s a number of reasons. I mean principally advisers may not be talking about it and presenting a protection policy to a client. Many clients think it’s just too costly, which is a common misconception. And in fact I would probably say if you can’t afford the protection policy, you probably can’t afford the mortgage. Typically protection will cost around about 10% of the interest payment. And I think the third reason is that people just think illness or disease or disability won’t happen to them. So these are the common objections and barriers that we face in the market I think.
PRESENTER: Michelle, would you go along with that?
MICHELLE BROOK: Absolutely I would yes. Clients do think there’s a cost element to it. They don’t see that as part of their mortgage process. So to be honest with you it is all about making sure that it is part of the process, yes.
PRESENTER: And what about this point about I suppose younger people often don’t think they’re ever going to get old or get ill, is that an objection?
MICHELLE BROOK: Yes, definitely, but it’s our job to basically talk them through the what ifs and all the rest of it, for them to then understand what is likely to happen and can happen.
PRESENTER: And who mainly takes out life cover, mortgages, critical illness now; can you give us a picture of who the buyers are today?
MICHELLE BROOK: Anyone that is really having a mortgage. So that can range to be honest with you from first buyers to people that on their third, fourth, fifth house, so it’s a variety of people.
PRESENTER: Well Andy mentioned that I think a fifth of mortgages are remortgages at the moment.
MICHELLE BROOK: That’s right.
PRESENTER: What are the sort of behaviours that you spot from somebody who’s remortgaging; do they differ as they’ve got more experience of the mortgage market from those who are first time?
MICHELLE BROOK: Yes, I mean to be honest with you, you can get clients who really get it at that point, because actually they’ve already gone through the process in the first place when they actually took out their first mortgage, or the purchase mortgage, and then they’re almost ready for a conversation around protection when they look at their remortgage, yes. But then you do have the other end of the scale where people are just not interested so again you’ve just got to get them to re-engage.
PRESENTER: And when you talk to people about protection, I suppose what do they think they’re getting protection from, do they think it’s just from, something that pays out if they were to die, do they think it’s protection against illness or?
MICHELLE BROOK: Yes, I would say in the main people just think it’s for death. And again it depends on the client that you’re dealing with, but some of them do understand that if you are ill that that can potentially be an issue as well. But I would say mainly people just think life cover.
ANDY PHILO: If I could just come in there Mark, I think from a product provider perspective you’d expect us to have a few stats, and I was just looking at some stats earlier on today. One in 14 of us will die before the age of 65. These things are happening to individuals so the cover’s needed. One in six could suffer a serious illness before the age of 65 and approximately half of us will be off work for longer than a month, so we need income protection before the age of 65. So the stats are quite compelling. They’re quite dramatic but they’re quite compelling that everyone needs cover of some sort.
PRESENTER: And I presume for a lot of people buying houses for the first time, often they might well have children, either new children or children on the way, which presumably increases their need to have that protection in the first place.
ANDY PHILO: Absolutely yes, and I think it goes beyond just protection the loan or the debt in that instance; you’re looking at family protection and protection going beyond the initial loan.
PRESENTER: And why do you think people have got this false idea of the cost? I mean you mentioned that in your first answer.
ANDY PHILO: I think it’s very much a common misconception, and I think it’s principally because people haven’t maybe investigated and looked at the cost and the value. As I said earlier typically it’s around about 10% of an interest payment. So it’s pretty small in the grand scheme of that it’s the biggest debt that you’re actually probably likely to get into. So the cost is actually relatively small compared to the benefits that you could potentially receive. So I think it is. We have a responsibility as a produce provider and to work with advisers to make sure that that discussion actually takes place.
PRESENTER: But, Michelle, how much do people need a bit of a margin of safety? I mean again to the point Andy made earlier that if you’ve saved everything you possibly can to get the mortgage, but you haven’t got enough for protection, what do you say to clients in that position?
MICHELLE BROOK: Well again we have a duty to ensure that everything’s affordable throughout the process. So we would always bring the protection element from the cost point of view into it as well. So our job is to make sure that it is affordable with protection. Because, like we’ve said, it’s a great deal, and we’re actually saddling them, for want of a better word, with a debt that they need to protect themselves against and their children of course as well. So again it’s just about, just part of the process. It has to be affordable because of the debt.
PRESENTER: It’s fitted as standard when you’re giving advice.
MICHELLE BROOK: Yes, absolutely it is. That’s right yes.
PRESENTER: Andy, unlike buildings or car insurance, it’s not a legal obligation to have insurance when you take out a mortgage. How has that come about?
ANDY PHILO: Yes, again it’s a question often asked, and some people are bemused by the fact that it’s actually not compulsory or mandatory from a legal point of view. I mean it was at one time. It was conditional, not legally binding but it was conditional upon getting the loan, and those days have gone now. I’m not so sure that that’s the solution to the protection problem or solving that protection gap to make it mandatory. My concern there would be that I think what we would find is lenders would probably package a product. It would be minimum benefits, minimum cost. So for me something like income protection is often undersold at the point of a mortgage sale. And this is a product that’s very valuable and quite often, particularly in the first time buyer market you can see that that’s a product that’s actually needed. Referring back to the earlier stat of half of us will be off work for longer than a month before the age of 65. So it’s a product that’s actually undersold, but is certainly available out there in the marketplace.
PRESENTER: What can you do to get knowledge of it as a product out there? If you don’t think compulsion is the right way to go, what do you do as a product provider to flag it up?
ANDY PHILO: So it’s about making products appealing, marketing products effectively, talking to the intermediary community, and making sure everyone’s got cover. I mean one of the other issues around making it compulsory is there are some clients that may not be insurable, how do they get cover, how do they get lending? So from that point of view it’s around working with the intermediaries to make sure that they’ve got adequate products in their toolkit to meet the needs of every consumer.
PRESENTER: Michelle, do you think there’s a lack of marketing, is that an issue? People just don’t know what’s available, so they don’t have the knowledge base to make the right choices.
MICHELLE BROOK: Yes, I think there is. Vitality are great at marketing, to be honest, and we’ve got some great tools that we can use from that point of view. I think across the board we could get a lot better at it for sure. So, yes, I think we can improve.
ANDY PHILO: I think we also should move away from advertising on the basis of fear. I think quite a lot of the promotion out in the marketplace is based on the fear of dying, the fear of illness or disability; whereas, in fact, other providers and Vitality in particular are using the benefits and the value of a product and getting rewards so the product is valuable to them during that term of that policy. So they get something back if they don’t claim. And we obviously sincerely hope they don’t claim, but there is a benefit and a value to them in keeping that policy.
PRESENTER: What works best in terms of things you get back? Is it cash back, is it cinema tickets, holidays, what is it?
ANDY PHILO: For me the best thing we get back is healthier clients. So the client becomes healthier. And we’ve got a lot of actuarial behavioural and clinical data that goes to support that. That clients actually, if they’re engaging in looking after their health and setting goals, they’re actually healthier and less likely to claim. But beyond that the benefits that we provide to our customers are very rich. We partner with some of the leading brands globally to make sure that the benefits and the rewards are appropriate to the current customer base.
PRESENTER: Michelle, is there a danger there that you’re blurring two or three things all together, and actually you just want them to get the protection? All of these other bits round the outside are a bit of a distraction.
MICHELLE BROOK: Yes, there is a danger, but you have to know your stuff. And it’s very important that you know what you are dealing with and what offering you have to clients. So it’s really important. And as a business all our advisers are really skilled in being able to talk about all the products that are available and actually advising the best policy to take. So it can be, but actually it’s just about taking the time to understand the products and know what you are dealing with.
PRESENTER: Now, a lot of people will have jobs, so when the issue of mortgage protection comes up they may well say I’m pretty sure I’ve got some insurance via work, I don’t need any of this, I just want a straight no chaser.
MICHELLE BROOK: Yes.
PRESENTER: Is that a dangerous position for them to be in?
MICHELLE BROOK: It’s a great position if they have cover at work, but what is the cover at work? And we do find that a lot of clients don’t actually understand what they have at work cover-wise. So again it’s about exploring what they actually do have, and let’s look at what you do need and make sure that it all dovetails with potentially what else you can take to make sure that you are well and truly covered. And obviously if you leave that employment, then the cover ceases so you need to make them aware of that and potentially safeguard going forward from that happening.
PRESENTER: But does that slow up the whole process of recommending a mortgage and perhaps the protection around that, because you’ve got a client who has to, goes well I’m not really sure, they have to go back through their files?
MICHELLE BROOK: Yes, absolutely it can.
PRESENTER: That’s got the potential to add weeks onto the process.
MICHELLE BROOK: Yes it can. But it is all about process. So from a broker, adviser point of view, it’s making sure that you follow a very good process that works. And before you even speak with the client it’s good to get information in front of you before you actually speaking with them because it will really help the speed.
PRESENTER: Andy, there seems to be a bit of a case where when the market goes down, the protection market goes up, and vice versa; why does that happen?
ANDY PHILO: Yes, again this happens consistently across all providers and lenders, and it is frustrating. I think it proves that the intermediary community can promote protection when necessary, but there’s a direct correlation between lending going down and protection sales going up. So we very much see that yes.
PRESENTER: Michelle, what’s your reason or take on why that happens? You’ve got clients coming to see you every day.
MICHELLE BROOK: Yes, from a broker’s perspective, it’s about income. And if you’re losing income, then you need to make it up somewhere else. So I suppose the next best thing to do is actually get your head stuck into the protection piece, being brutal. So there is an element of that. And maybe time to actually talk to clients about protection as well.
PRESENTER: But is there a danger that people realise they need protection when it’s the wrong point in the economic cycle for them?
MICHELLE BROOK: Potentially yes.
PRESENTER: Now, one of the things I wanted to get a view from, Andy, was we talked about there’s a range of protection offers out there, but could you just talk us through in short what the different options are?
ANDY PHILO: Yes sure. I mean we did some research, and one of the barriers to selling protection as I mentioned earlier on was just around the time that it takes to actually go through a mortgage sale, and at the end of that you don’t want to burden the client with another sale around protection, as important as that is. So that’s one of the barriers. And also just what product do you actually promote to make sure that that client’s protected? So we did quite a lot of research around that and we developed a product that I refer to as effectively the fully protected mortgage. And it effectively consists of four simple steps for elements.
The first is to provide an element of life cover, whether that’s level cover or decreasing cover. And you can index that to make sure it keeps pace with inflation if that’s what you need. If you want to build in an extra element of family protection, then you can add serious illness cover, which pays out on diagnosis of a serious condition, or a debilitating illness or condition. And then income protection, which as I said earlier on is very much undersold in the market. It accounts for around about 10% of total protection sales through intermediaries. So you can actually bundle all three of those products. You can add on other benefits, like children’s cover or wavering premium benefit if you want to.
So effectively what we’ve got, if you just refer to the slide, there’s four simple steps to building that particular cover. And then under the serious illness cover element, so making sure that obviously if a client doesn’t die but actually suffers a debilitating illness or condition, and a severity payment is needed, then Vitality will make a benefit related to the severity or the income or the impairment suffered by that individual. And we’ve got 145 conditions that are actually covered under that, and 77 of them are paid out 100% benefit. So it’s a really comprehensive product.
PRESENTER: But isn’t there a danger, I mean if it takes a couple of hours to get through a mortgage application, and then you’ve got paperwork that includes 145 conditions, and some stats about what the percentage rate of payout on all of those has been, I mean you go from learning about the housing market to learning about human biology. That’s a big ask isn’t it, for a client?
ANDY PHILO: Yes, it’s really not as complicated as that really. So we spend a lot of time talking to advisers and to clients about the comprehensive nature of the product. So ours offers the broadest range of protection across the market. And what we’ve also done is made it quick to apply. So going back to the earlier point around the client process is just too long after they’ve bought a mortgage, or been through a mortgage application, to then go through a protection application, we’ve introduced what we call optimiser underwriting, which is effectively just five questions, five medical questions. So you can apply within five minutes. So once you understand the product you can actually apply for that for your client within five minutes.
PRESENTER: And does that then mean they’ve got cover full stop, or they’ve got cover until you might come back to them at a later date and say actually we’ve covered you up until now, but on reflection we can’t cover you for this?
ANDY PHILO: No. So it depends on the answers to the medical questions. So we could give an immediate underwriting decision, the client could be on risk then. Typically on a mortgage you wouldn’t actually need that cover until you’re legally obliged to buy the property, typically exchange of contracts. So what we will do is we’ll provide, until you complete we would provide mortgage free cover. So what will happen is that policy would go in force when you actually complete on the mortgage, but between that period of exchanging contracts and completion we’d cover that amount of sum assured.
PRESENTER: Michelle, if you’re buying protection obviously the length of mortgages is going up now, people might buy another house later in life, so they could be getting into their 60s or even 70s when the mortgage comes to an end. How does that affect the terms of some of these protection policies?
MICHELLE BROOK: Well luckily there are products out there that do cover that age group. So it’s not a problem. It’s not a problem at all. It really doesn’t matter how old someone is in front of you, you still need to have that discussion. Obviously there are limits in terms of age limits with protection. But again you still need to have the discussion, because we have a duty to obviously take the client through what if and circumstances that could happen.
PRESENTER: And again picking up on what Andy was saying there about when you offer mortgages and protection, what types of cover are most popular with your client base, and why?
MICHELLE BROOK: Actually very similar to what Andy has just explained, I mean we do have a variety of providers that we can use, and it’s all about providing the client with the best product for their needs. So it’s life cover. So anyone dying. It’s sickness cover. Income protection I agree with you is really undersold in the main as an industry. And within Brook it is quite a rigid process. The protection meeting is just as important as the mortgage meeting, and that is part of our process, because if you don’t have the right process that’s where it can be forgotten, or it goes by the wayside. Whereas if it’s part of the process from the very moment you start the process with a client, then it will happen, and that’s really important.
ANDY PHILO: What is becoming clear is that mortgage terms are extending. We are seeing a lot of mortgages going in beyond retirement. And as a result of that we are seeing people actually living longer, which is good, but they’re actually living sicker or in poorer health. So we’ve developed a range of products that we deem later life products really, that cover you beyond retirement and into later life. So things like a benefit that pays out if a client were to suffer Alzheimer’s or dementia, or suffer from activities of daily living. So these products are more modern now and these are the sort of things that we need to be thinking about so future generations and populations suffering for longer.
PRESENTER: Michelle, when you’re talking to your clients, is it better to deal with the mortgage issue first, and then protection, or protection first and then the mortgage?
MICHELLE BROOK: That’s a really good question, and to be fair we’ve probably tried every scenario. It’s as important as the mortgage discussion, so they start at the same time. The mortgage potentially does have to come first, because obviously the client wants that house. So basically it’s all about the mortgage, but the protection shortly follows.
PRESENTER: And how tough has it been to get your team trained up? I mean if you’ve gone in thinking I’m here to do mortgage, be a mortgage adviser, and someone says oh you need to know lots about insurance, their initial reaction might be do I?
MICHELLE BROOK: Yes, that’s a good question as well. Actually within the business it’s about the passion and the belief. So from my advisers’ point of view they have got the passion and belief in that what they are talking to clients about in the protection discussion is a fantastic thing. Because I can give you so many scenarios where our clients have actually claimed on policies that we arranged for them, that’s a massive testimony really isn’t it of why you should have protection.
PRESENTER: I mean when you’re talking to clients, I mean obviously you don’t want anything bad to happen to them, but how do you prove the value of the advice you’re giving, not just the mortgage but all the packaging that goes around it?
MICHELLE BROOK: Lots of stats, so we get lots of stats from the providers, which is great. And it’s factual. And we’ve got first-hand experience of our clients claiming, so there is no finer thing to use is there.
PRESENTER: And I suppose this raises a moral point really, whether or not as an industry you’ve got the right to saddle people with potentially the largest pile of debt they’re ever going to have in their lives without telling them that they could have an insurance policy that will help them should something go horrible wrong.
ANDY PHILO: Yes absolutely, I mean it’s critically important I think. We’ve had some horrendous things come out recently just where advisers maybe haven’t spoken to a client about the need for protection in a mortgage sale. I mean there’s been a couple that I’ll probably recount now. One where a client wasn’t offered a quote by an adviser who reasonably, based on the health of the individual felt that they wouldn’t get cover. And I think that was probably a reasonable assumption, but nevertheless didn’t even give a quote. That went to the ombudsman. The ombudsman found in favour of the client, again quite understandably that the individual adviser hadn’t taken the time just to even offer a quote and they shouldn’t have assumed that that cover would have been declined. So there was a judgement there that found against the adviser. And then just recently we’ve seen a claim made for advice that was given 20 years ago that was inappropriate advice in terms of related to a product sale. And they found in favour of the client there and against the adviser. And literally just today on the wires, on the press this morning, what we’ve actually seen is a 13% increase in complaints to the ombudsman for advice that was given more than 15 years ago.
So we are very much in a litigious society, and clients are becoming, absolutely rightly, better educated. They understand the products. But it’s on us as an industry as produce providers to help the adviser make sure that they’ve got the right tools in order to do the job and make sure the products are appropriate. But as you say there’s a moral and a professional responsibility, certainly moral responsibility to making sure that we give the client the opportunity to give that cover. And what we’re also seeing is a number of distributors, particularly the larger distributors, such as MAB and others, they’re actually mandating that protection discussion, so either referring it on to a qualified adviser if there isn’t one within the firm, to make sure that that client is at least given the opportunity to have that discussion around protection and I think that’s an excellent thing.
PRESENTER: Is there a fear, Michelle, if you’re in business as an adviser that there’s actually a really big long tail risk built in? It could be 25 years. It could be more as mortgage products get longer.
MICHELLE BROOK: Yes absolutely, I mean things are changing. And change is good, but we have to roll with the changes. And we, as a business, do push the providers and the lenders for that matter to help us push the boundaries. Because the demands get bigger every single year to be honest with you, so we work very closely with providers to, I mean they’re on the ground anyway and they understand, but from our point of view it’s important that we work together to always develop products and really work with what is happening at the time.
PRESENTER: So when you’re dealing with your own advisers in your business, how do you motivate them to really be on the issue of protection around mortgages? Is it fear of what might happen in the future? What is it?
MICHELLE BROOK: Well yes absolutely. Because if we don’t protect that client and something happens, that is not a conversation I want to have with the client or the family. So it does come from the top. But I’ll be honest with you, the advisers that I have are really just passionate about what they do, and they believe in all the products that they’re actually arranging for clients. So yes whilst it’s the ethos of our business, the advisers are massively bought into it, because they know it’s a good thing. And we have a specific protection only team as well that we feed most of our clients into so that we know that all our clients are having that relevant discussion from the experts.
PRESENTER: So if somebody using one of your advisers - this is a what if scenario - was buying a mortgage and there was no protection around it, is that an automatic red flag, you wouldn’t necessarily not take the business, but you’d have to have some very good reasons why they didn’t.
MICHELLE BROOK: Yes absolutely, that’s part of our process definitely.
PRESENTER: And in terms of challenges for advisers on mortgages and protection, we touched on this point about it being quite a lengthy conversation, do you find that clients run out of steam having got their head round mortgages? They want a bit of a break before they come back to the protection issue.
MICHELLE BROOK: Yes they do, to be fair they do, and so do we to be honest, because it is a lengthy process. And actually quite, you know, it’s quite a taboo subject isn’t it for the average person. So it’s just about understanding where your client is, and if they have had enough it’s let’s take it to another meeting, because it’s that important. You can’t do a half-hearted job with a client that’s not listening, or they’ve had enough or they need to rush off or whatever. Again it comes back to the process and making sure that when you’re having that discussion that enough time is allocated to it.
PRESENTER: Andy, from your point of view, I mean you deal with a lot of advisers, they must be constantly asking you for things that can help them. What is some of the feedback that comes from the adviser community on what helps them to explain this as time effectively as possible?
ANDY PHILO: Yes I mean we’re getting asked for comprehensive products that provide cover for the needs of their clients, but also swifter and smoother underwriting processes to make that journey a lot easier and simpler, and I think just generally education around the product offering. So one of the things that we’ve developed at Vitality is we’ve got the largest distribution team across the UK. So we’ve got around about 160 business consultants locally in the regions that are there to help support the advisers, to give them background knowledge, education on the products that we have, and also some insight in the market, and some of the issues and barriers that they may encounter.
PRESENTER: So, Michelle, when you’ve got a client with you, how long does it take to get through the mortgage and the protection side of things in a meeting, a couple of hours?
MICHELLE BROOK: It depends on the clients and the circumstances, but it can take a couple of hours just to do the mortgage. And actually there’s a lot more work involved behind the scenes, not spent in front of the client. So it’s about a day per mortgage actually, but with the client it can take on average two hours just for the mortgage. Because obviously if you’re going a thorough job with the client, understanding their needs and circumstances, then you need to get to know the client, so clearly you need that time. And then the protection can take, it’s actually less time on the protection to be honest with you because you know the client by that stage. So it is, but again that’s another hour.
PRESENTER: And when you say the client, I mean I suppose by default we’re assuming the person who’s taking out the mortgage and their spouse, but is it ever worth having a conversation with a broader part of the family? Because if something bad happens, it often has a knock-on effect, not just on children; you might have a parent who’s dependent on you as well.
MICHELLE BROOK: Correct, yes absolutely. As part of the discussion that we ask relevant questions to understand what the family looks like, and actually it’s all about referrals as well isn’t it? So towards the end of the process we will be highlighting the fact that it would be worthwhile speaking to certain members of the family.
PRESENTER: And final question to push you on this one, but again is there any correlation between the age of the person that you’re talking to and how engaged they are?
MICHELLE BROOK: Yes, first time buyers range from please tell me everything I want to know everything to I want it as cheap as possible. And if you’ve already got clients that already have protection, potentially that’s an easier discussion, because they’ve actually taken it already so they get it. But to answer your question, yes.
PRESENTER: Well, again, Andy, there is this whole issue, the difference between I guess value for money and just price. Do you fear that too many people just go on cost?
ANDY PHILO: I do yes. I mean quite often a lot of individuals go for the cheapest product they could possibly get. I mean look any cover is better than no cover at all most, certainly, but I’m an advocate of having the right cover, the most appropriate cover. So typically for someone who’s a first time buyer, maybe if they’re single, it’s probably more appropriate to have income protection rather than a traditional term insurance product that they quite often get in the marketplace. I mean the need there is around protecting that individual against illness or disability. I mean in the event of death you could at least sell the asset, I mean I think you should do both, you should offer life cover and income protection, but if it’s a single individual at least you’ve got an asset that you could sell. I mean if the value of that property has fallen you might not have enough asset value to be able to repay the loan. So that’s another reason why you should have life cover. But it goes beyond that. I mean there’s a much wider remit of advice needed. So I think a comprehensive fact find. And that’s why I think it’s really important the intermediary is so good in this position to be able to understand their customers, and give them appropriate advice.
PRESENTER: And is there any implications that people need to think about given the rising retirement age? Because I suppose maybe a lot of people might assume they want to pay that mortgage off just before they hit retirement. But if they retire early, they’re lucky enough to be able to, if they have to work for a few years extra, does that throw, or can that throw the finances and the financial planning out?
ANDY PHILO: It can do. I mean certainly when I started out many years ago, you always expected to repay a mortgage by the time you finish work, and that would make sense. But we are seeing, as I said earlier we’re seeing people living longer and working longer, and are actually seeing longer extended terms on their mortgages. So it’s really important. And I know a lot of advisers cover this as part of their advice process to make sure that there’s affordability post-retirement. We’re seeing actually what we’re calling RIO mortgages, retirement interest-only mortgages, which have now been declassified by the regulator, and a lot of distributors are looking at that very keenly to make sure that they’ve got a really highly qualified adviser. And I know again MAB focus on this to make sure that they’ve got an appropriate adviser giving that consistent and professional advice, particularly for those debts and loans that are going past what would be normal retirement age for many.
PRESENTER: So, Michelle, how do you make sure that what you’re doing in your silo around mortgages doesn’t mean that the client actually ends up with a worse retirement outcome than they should have on balance?
MICHELLE BROOK: It’s all about fact finding and getting to know the client. As part of our advice, it potentially isn’t good advice to take a mortgage into retirement, unless they have enough income to support it. So again it’s all about fully understanding the client’s circumstances today, throughout the mortgage term and at the end of the mortgage term.
ANDY PHILO: Those regular reviews are really important to make sure you see your client on a regular basis, to make sure you understand their circumstances, whether they’ve changed, and then adapt an advice to make sure it meets the needs, not just at the original point of sale, but beyond that.
MICHELLE BROOK: Yes, correct, and that’s what we do. As a business we do that. And that does include the protection as well so we will constantly review protection.
PRESENTER: Well I was going to say that protection around a mortgage, how often should you as an adviser be having a chat with a client, or how often should the client be getting back in touch with the adviser?
MICHELLE BROOK: Very regularly.
PRESENTER: Is that annually?
MICHELLE BROOK: Definitely as a minimum annually yes. So things can change, absolutely, and the perfect example of that is children. You know, you may see first time buyers with no children. That can happen at any point. Well there’s an immediate need there to have a further discussion isn’t there about protection.
PRESENTER: And I noticed when Andy was saying that there’s possibly too many people who buy purely on cost you were nodding, so what are your top tips for persuading a client who’s in front of you that they don’t necessarily want the cheapest product?
MICHELLE BROOK: We’ve got the right people talking about a whole range of products. Again it’s about the need. It’s about arranging policies around the need of the client. And it’s about again the process, it comes right back to the beginning, establishing affordability and what they think, what the client thinks they want to put away each month for the mortgage and protection, because it isn’t just the mortgage. So again it’s right at the very early stages and you’re just paving the way for when you do have that discussion on protection. Remember when we said it was going to be X, right, so we’ll work around your budget for it, and obviously that’s what we try and do, tailor it to the needs and the affordability.
PRESENTER: Now we’ve had a decade of low interest rates, somebody takes on, borrows a lot of money for maybe a 35-year term. In 20 years’ time who knows where rates are. So what sort of stress testing do you do when a client comes to you and wants a mortgage? Where do you crank the needle up to on base rates? Seriously I mean I think it’s obviously a thing that needs.
MICHELLE BROOK: Again it’s a great question yes. We have to show how much the mortgage would be on any lender’s SBR. But also with a lot of clients we will give them an example of what it could be. And I’ve been around long enough to know that rates can be as much as 15%, and Andy definitely has, and therefore it’s very important to touch on the fact that rates can and do go up. So it’s very important that we do that and we do do that.
ANDY PHILO: Yes, I think on the protection side, I mean affordability is key as well. So making sure that the product that they’re buying is, OK it doesn’t mean to be the cheapest, but it shouldn’t be the most expensive and they shouldn’t be buying cover that they don’t necessarily need. One of the things we’ve introduced is optimiser underwriting, which effectively gives the client an immediate discount on our standard premium, and they can lock that premium in. And we give them the benefit of the rewards programme so that they actually receive additional benefits through that policy as well. So it’s not just about a standard premium; it’s about other benefits that they may receive as well.
PRESENTER: What if somebody says well that’s all fine but I’d rather just pay for the protection, I can buy my own ticket so I can spend my, I can decide with my own money what I want to buy things with. This is all just, it’s just another layer of complexity.
ANDY PHILO: Yes, I think it’s a good point. And we’ve got policies that just provide for a level premium, you know, a very simple vanilla product as well if that’s exactly what you need. So I think it’s a misconception that we only want clients that are fit, or want a different product. So we’ve actually got those products as well. But we actually do see is once we actually talk to advisers and clients certainly buy into that philosophy of actually particularly in that first time buyer market where that stress testing is quite delicate. And we actually see people who have actually been saving and get into their property, then they can’t go to the cinema as often, they can’t buy as many coffees because budgets are a little bit tighter, because they’re a bit concerned maybe by the volume of the debt. And those other elements of gym discounts or benefits through cinema or Amazon Prime, or whatever the benefit is that we give, can actually effectively net off that premia so it becomes more affordable. But actually certainly Vitality offers a vanilla-type product, so no bells and whistles as well, and very competitive in that space as well.
MICHELLE BROOK: Can I add to that?
MICHELLE BROOK: The important thing as well on the back of what Andy’s just said is to keep reviewing the client’s circumstances. It’s really important that we do that, because the client may start off on a low cost, for want of a better word, policy in the first year; 12 months goes by, they may feel that they have got more surplus income to spend on protection. So therefore we have that discussion regularly to make sure they’re always aware of what they have. And potentially also about new products as well that come out, it’s really important that we discuss any changes in the market.
PRESENTER: And from what Andy was saying there’s obviously lots of bells and whistles that you can put on a product to bespoke it for a client. How easy is it to compare products from different providers and all the different options; is the industry making it easy for you?
MICHELLE BROOK: Until recently I would have said not brilliant, but Vitality have actually brought out a comparison tool. We have one on a mortgage. We always have had, because obviously it’s all about giving the best advice to the client on the best product. And the cost, it’s got to be related to their affordability. Not really had anything on the provider side until very recently. So we need to push all the providers to help us with that because that is really important. There is a tool that you can compare with critical illness across the board, but that’s it. We do probably need more.
PRESENTER: And who’s responsible ultimately for the comparisons from your tool Andy, just so that everybody knows it’s provided by you but it’s fair and whole of market?
ANDY PHILO: Yes I mean we have a technical marketing team that developed the product comparison tools, whether that’s our income protection reality checker, or the serious illness cover comparison tool, and the products themselves are independently verified by Defaqto, so five star rated products to make sure that they’re independently reaching the benchmark, necessary benchmark to get us onto network panels, or just meeting the needs of the consumer.
PRESENTER: We are pretty much out of time, but I wanted to get a final thought from each of you. Michelle, I’ll come to you first. From everything we’ve talked about, if there was one crucial piece of information you’d want to leave on the table, what would it be?
MICHELLE BROOK: To the brokers, please just talk about it, make it part of the process, don’t forget about it, it is really important that we talk about protection, and understand your products.
ANDY PHILO: Yes, I mean pretty similar really. I mean the mortgage market is massive and growing marginally. The protection opportunity is also there. And to use a phrase I used earlier, I think as advisers we have a moral and a professional responsibility to make sure our clients are at least engaged in the understanding that appropriate protection products are there. We’re here to support the intermediary community. It’s the dominant channel within our business and we’ve much available to talk to advisers about the different benefits under plans in the marketplace.
PRESENTER: We have to leave it there. Andy Philo, Michelle Brook, thank you both very much.
ANDY PHILO: Thank you.
MICHELLE BROOK: Thank you.
PRESENTER: By the end of this video you should be able to understand and describe the need for mortgage protection and the main barriers to getting it; how to keep a client engaged in discussing mortgage protection, having gone through a lengthy mortgage conversation; if the rewards and benefits are a worthwhile incentive for taking out a protection policy.