TY - JOUR

T1 - The price, quality and distribution of mortgage payment protection insurance

T2 - A hedonic pricing approach

AU - Ashton, John

AU - Hudson, Robert S.

PY - 2017/3

Y1 - 2017/3

N2 - Mortgage payment protection insurance (hereafter MPPI) provides varying combinations of accident, sickness and unemployment insurance and is used to protect the mortgage payments of policyholders in the event of a fall in income. Despite alleviating housing market failures, this service has been heavily criticised for providing poor value for money and being associated with unhelpful sales techniques especially when sold jointly with a mortgage in the UK. Consequently, the Competition Commission (2009) ruled that after February 2011 MPPI should not be sold jointly with mortgage lending within seven days of the credit transaction. We examine whether this prohibition was justified and if the form of distribution, either jointly with the mortgage or independently influences the premium levels. This assessment uses a hedonic pricing approach with details and premiums of MPPI policies in 2010 and 2012. Despite the success in reducing MPPI premium levels, we conclude that the Competition Commission judgement has raised concerns as to mortgagee protection.

AB - Mortgage payment protection insurance (hereafter MPPI) provides varying combinations of accident, sickness and unemployment insurance and is used to protect the mortgage payments of policyholders in the event of a fall in income. Despite alleviating housing market failures, this service has been heavily criticised for providing poor value for money and being associated with unhelpful sales techniques especially when sold jointly with a mortgage in the UK. Consequently, the Competition Commission (2009) ruled that after February 2011 MPPI should not be sold jointly with mortgage lending within seven days of the credit transaction. We examine whether this prohibition was justified and if the form of distribution, either jointly with the mortgage or independently influences the premium levels. This assessment uses a hedonic pricing approach with details and premiums of MPPI policies in 2010 and 2012. Despite the success in reducing MPPI premium levels, we conclude that the Competition Commission judgement has raised concerns as to mortgagee protection.

KW - Mortgage Payment Protection Insurance

KW - Mortgage Credit Insurance

KW - Insurance premium setting

KW - Product quality

U2 - 10.1016/j.bar.2016.07.003

DO - 10.1016/j.bar.2016.07.003

M3 - Article

VL - 49

SP - 242

EP - 255

JO - British Accounting Review

JF - British Accounting Review

SN - 0890-8389

IS - 2

ER -