The role of the adviser has never been more important in explaining the true value of protection as panic has enveloped mortgage customers due to fears around skyrocketing interest rates.
And advisers must also beware that many customers may be feeling more vulnerable than just a few weeks ago given the upheaval.
The past weeks have seen lenders halt mortgage offers and withdraw and replacing products rapidly as global markets responded to chancellor Kwasi Kwarteng’s mini-Budget with a falling pound which fuelled forecasts of sharper rises in interest rates.
The Bank of England said it will “not hesitate” to hike interest rates and has been swift to act in bond markets.
But despite this and Kwarteng abandoning his plan to abolish the top rate of income tax for the highest earners with rumours of other potential u-turns, markets remain unconvinced.
Commenting on what this all means for protection cover, Alan Lakey, a director at Highclere Financial Services and CIExpert, told Health & Protection that Kwarteng’s mini-Budget was a “huge gamble” which at the time “looked foolish and looks even more foolish now.”
“Clearly world markets are very unhappy with it and the pound has been falling like a stone,” he said.
“Many mortgage lenders have to borrow from the markets to lend at fixed rates. With the pound in freefall and bouncing around, it’s not feasible to borrow at the moment because they aren’t getting any certainty and possibly wholesale lenders aren’t willing to lend until they get some degree of certainty with regards to current and future interest rates.
“When interest rates rise it not only impacts people who are looking to buy but also those who have got mortgages, credit cards and loans. It also impacts the rates that they will be able to lock into in a year’s time – when their current 1.5% or 2% rates finish, they might be on 4%, 5%.
“The outcome of that is there are going to be a high percentage of people who are going to take a risk on not insuring themselves and there may be a reasonably high percentage of people who will cancel their existing policies – that’s the fear.”
Act before lapses
Lakey added that he would not be surprised if around half of the population have never experienced mortgage rates at such a high level.
Consequently, he has compiled a list of all his protection clients and aims to see if he can save them money on their protection cover, potentially for example by switching from a more comprehensive critical illness plan to a budget one.
“I’ll write to them and say, ‘I don’t know if this is impacting you. However, if it is, then you could consider doing this’, and that might forestall people,” he said.
“If someone cancels their policy, it’s very hard to go back to them and say, okay you’ve cancelled your £80 a month policy, I can offer you a £63 a month policy.
“They will probably say no, but if you get to them before they do that, the chances are you can prevent that, and it’s that old adage – some cover is better than none.”
Get the message out
Naomi Greatorex, owner of Heath Protection Solutions, told Health & Protection that if people are re-mortgaging their homes right now, the last two weeks’ developments have been terrible news.
“The effect that someone has got to pay a considerable sum more on a mortgage, what that means for protection is people will obviously have less money,” Greatorex said.
“And the energy rates are going up as well. It’s real life, isn’t it? People who were paying £1,200 a month on a mortgage may now be paying £1,500 or £1,600 a month on a mortgage – how are people going to find that money?
“They’re always going to be reviewing what they have and deciding what’s important and what’s not important and the problem is protection is not a must have, is it?
“So how do you get the message out to existing clients to review what they have, but also talk to new clients about the risks? It’s going to be about budget now. It’s going to be about how we help people budget.”
Customers feeling more vulnerable
Miles Robinson, owner of Home Group Financial, likened the feeling in the market to when Covid hit.
“There are a lot more customers who feel more vulnerable due to the volatility in the market and what that therefore means the role of the adviser becomes ever more important. The value of advice on any kind of mortgage or protection product is so much more valued,” Robinson said.
“Protection is such as an advised product where if it’s done well and correctly, people really understand and value that product. Some will say people will have less money and they may feel they will not be able to afford protection, but I think it’s quite the opposite.
“I think people really value that piece of mind and value that advice they’ve had to say, ‘you know what? I’ve got my fixed rate sorted – if anything does happen to me in terms of health, accident or death, actually I’m also covered’ in that respect as well.”
