Mortgage Payment Protection and Income Protection Insurance will become even more expensive as Underwriters learn how Government austerity measures will have a disproportionate effect upon UK employment patterns.
The price of Mortgage Payment Protection and Income Protection Insurance is not just linked to the monthly Office for National Statistics figure for people ‘unemployed and claiming benefit’. This number may remain broadly static for some time. Cynics say for the next few years there will be enough unemployment to hold down pay demands, but not so much that there will be riots in the streets! In fact the gross figure for people without work is less important for the Underwriter setting premiums for both Mortgage Payment Protection and Income Protection Insurance, provided employment patterns are relatively static. During such times this can be measured and insurance rates for the majority of people remain highly competitive. In a static market, providers focus upon offering the best rates to those people who have a better than average chance of either keeping their job or getting another one.
Every economy evolves with new industries that develop at same time as mature or established firms reduce their cost base to compete – typically through automation, market consolidation or simply shipping processes abroad. So, if market evolution is normal and competitive products were offered previously, what has changed? The stark reality is that the new Government has decided to put the UK into the economic equivalent of The Priory to wean us off a dependency upon public expenditure.
For at least 15 years the steady growth of the economy, along with buoyant tax receipts, has enabled public sector budgets to grow, especially in Health and Education. Equally a remarkable programme of inner city renewal has taken place with a multitude of grants and contracts that spread Government spending throughout the economy. David Cameron has declared a clear intention to re-balance the economy away from the public sector. Consequently the certainties of existing employment patterns are being swept away, especially in the inner cities with their disproportionate reliance upon the public purse.
At the same time this is likely to mean that Government departments will slim down their staff to match their reduced workload as the new administration swings away from ‘big’ government? Consequently will we see the closure of whole government departments as the new administration moves to out-sourcing? Potentially legions of civil servants could be replaced by a small team of supply chain contracts managers.
Above all else, it is this re-balancing of the economy that creates such uncertainty for the Mortgage Payment Protection and Income Protection Insurance Underwriter. Their job is to accurately estimate employment patterns and redundancies in hundreds of industries, at least 2 years in advance. They then price in the likely cost of claims and work out what premiums people must pay now to cover their claims over the next 2 years. The only certainty the Underwriter has at this time, is an understanding that before people in the public sector move to the private sector, they will lose their current jobs.
How many new private sector jobs will be available for out of work public sector workers in our barely recovering economy? Then to what extent will the individuals existing skills have application in the private sector? Both of these factors will have an enormous impact upon the time it takes for people in this situation to secure new employment.
Most Underwriters have worked in large financial institutions and have seen massive change over the years following mergers and acquisitions. Often these drove savings of perhaps 10%. Now the government is talking in terms of cuts between 25 and 40 percent in their unprotected departments. Furthermore it is the effect on the private sector as big public spending projects are pulled or scaled back. These could send further shock waves through the whole economy reducing the number of available vacancies.
Therefore the sheer scale of change leaves every Underwriter in no doubt that unprecedented numbers will lose their current jobs. They can only guess how long those out of work will take to find another job. This is the hardest factor for underwriters to calculate – they are in uncharted waters and economically speaking surrounded by sharks!
The questions people are asking right now. “Have premiums already gone up this year?” Yes they have. “Will they go up again?” Most certainly, all Underwriters will be cautious when faced with so much uncertainty. “When should we hope things will improve?” When the ‘new reality’ for UK employment patterns has emerged. Only then will the Underwriters be able to make an accurate assessment and Protection Insurance rates can be stabilised.
With so much change, is this a good time for consumers to buy Income Protection or Mortgage Payment Protection Insurance? Dennis Haggerty, Marketing Manager for on-line specialist iprotectinsurance.co.uk commented “Yes it most certainly is. The longer people leave it the harder both Mortgage Payment Protection and Income Protection will become for them to buy. There are still competitive deals out there. Though Civil Servant and Local Authority workers will have to pay much more, if they can buy the cover at all. This is simply because their future employment prospects are so uncertain at this time.”
The Lloyds Banking Group have recently stopped offering this type of insurance. Far better value can be found on-line, however it is indicative that premiums are likely to rise because the number of providers willing to offer this cover has reduced. From July 2010 iprotectinsurance.co.uk, whilst not increasing premiums, are now declining any further applications from people employed in the civil service or local authorities. This is an example of how the market is contracting in terms of the people Underwriters are prepared to cover. Fortunately cover can still be found for the majority of occupations.
Dennis Haggerty FCII M IDM Marketing Manager iprotectinsurance.co.uk specialises in the supply of low cost on line Lifestyle Protection, Income Protection and Mortgage Payment Protection Insurance.
Key to the success of i:protectinsurance has been the focus upon supplying a product range that is available exclusively on-line. By eliminating the usual costs associated with selling insurance: telesales teams, direct mail, middlemen and commission, i:protect can offer customers exceptional value for money.