Mortgage brokers could find themselves dealing with costly complaints in the future if they avoid the protection insurance conversation with clients, claimed Sesame Bankhall Group’s sales director.
At the Protection Review conference on 14 July, its chief executive and host Kevin Carr revealed representatives from the Financial Ombudsman Service had warned him of the potential pitfalls of brokers not ensuring clients are aware of the need to protect against long-term sickness which could prevent them from paying their mortgage.
Sesame’s Mark Graves agreed that selling a mortgage without documenting the protection conversation could leave advisers open to paying compensation, given the Fos’ stance on similar cases.
“From a network’s perspective, if you don’t complete adequate notes to say the client was informed about the need to take out income protection, then you’re vulnerable to claims further down the line,” he said.
A panel discussion began with Mr Carr revealing survey results demonstrating the extent to which most brokers disregard selling protection, with 61 per cent stating the current relationship is broken.
Protection Review asked over 300 advisers whether or not protection industry integration with the mortgage market needs to be reconsidered. Only 3 per cent said everything works well, while 36 per cent admitted things could be better.
Mr Graves called it a “dereliction of duty” for advisers not to raise the need for protection with clients, saying they had a “moral obligation” to do so. He stopped short of suggesting it be made mandatory like requirements around home insurance, but called upon insurers to change the terminology around products to “make sure it does what it says on the tin”.
Financial Services Consumer Panel member Teresa Fritz admitted most consumers don’t even know income protection exists, while the issue of improving coverage is at the bottom of the list for most in government and the regulator.
“It’s the job of advisers to make clients understand the consequences, make them see the need,” she stated. “Many more people will suffer from some form of long-term sickness, as opposed to a critical illness.”
She also called upon providers to develop simple products which consumers can buy on their own, in addition to those sold through intermediaries.
However Andy Philo, distribution director at VitalityLife, responded the issue is not simple products, rather cover that is appropriate for the individual, although he admitted the application process could be made a lot easier.
He argued commission structures needed to be changed so they appropriately reward advisers, suggesting better rates for persistency or commission paid over the term of a policy.
On liability, Mr Philo added: “Protection should be made mandatory at the network level, there’s a real future risk if you haven’t had the conversation; it could well turn into the next PPI.”
peter.walker@ft.com
