The price,quality and distribution of mortgage payment protection insurance: A hedonic pricing approach |
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| Affiliation: | 1. Bangor Business School, University of Bangor, Bangor, Gwynedd, LL57 2DG, UK;2. Hull University Business School, University of Hull, Hull, HU6 7RX, UK;1. School of Economics and Statistics, Università di Milano-Bicocca, Via Bicocca degli Arcimboldi, 8, 20126, Milan, Italy;2. Department of Economics, Università di Genova, v. Vivaldi 5, 16126, Genova, Italy;3. State Street Bank Luxembourg S.C.A., 49 Avenue J.F. Kennedy, L-1855, Luxembourg;1. Durham University Business School, Durham University, Stockton on Tees TS17 6BH, Great Britain, United Kingdom;2. Newcastle University Business School, Newcastle Upon Tyne NE1 4SE, Great Britain, United Kingdom;1. CSIRO, FD McMaster Research Laboratory, Locked Bag 1, Armidale NSW 2350, Australia;2. ParisAgroTech, 16 rue Claude Bernard 75005, Paris, France |
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| Abstract: | 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. |
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| Keywords: | Mortgage payment protection insurance Mortgage credit insurance Insurance premium setting Product quality G21 Banks Other depository institutions Micro finance institutions Mortgages |
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