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Should LMI policies be made fully transportable? Tell us what you think

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Australian Broker | 24 Apr 2013, 06:00 AM Agree 0
We want to hear what you think about LMI transportability
  • Ian in Qld | 24 Apr 2013, 10:38 AM Agree 0
    For the customers making the policy transportable is logical. However I am sure the Mortgage Insurance provides will disagree. Such questions come up as:
    How long should the option be offered before the circumstances outlined on original application become effectively out of date and need to be re-assessed from a risk profiling point of view?

    What extra cost would there be to the insurance policy as it could be perceived to be an increased risk and an increase in the time-frame of higher risk?

    What would be the take up of clients, given this would not represent 100% of client needs?

    What is the average time-frame that an insured loan remains with a profile of Loan to Value Ratio requiring the insurance?

    I am certain these question would just be scratching the surface. Remember client's only see the cost, and the Mortgage Insurers only see the risk.

    Ian

  • LYNNE | 24 Apr 2013, 11:12 AM Agree 0
    Definitely It's a ripoff!!!
  • Randy in WA | 24 Apr 2013, 11:30 AM Agree 0
    You wouldnt ask Allianz to take over the risk of a life assurance policy from SGIO without a re-assessment/ premium change based on the customers current circumstances?

    ....and the last time i changed my car insurance, I had to pay my premium again to the new insurer?

    The false perception is that life assurance, home insurance & car insurance is short term, whilst LMI is over 25-30 years...but we know that the average re-finance period for most borrowers is now <4 years in Oz...and much can change in borrower circumstances/ market conditions during this period

    Many lenders now have exclusive arrangements with mortgage insurers (CBA with Genworth and Suncorp with QBELMI for example)...so unless the borrower was moving to a lender with the same mortgage insurer (restricting 'choice' of lender for the existing borrower, which goes against recent regulatory changes aimed at opening up competition in the industry), this idea is almost unworkable

    We have to be careful in asking the mortgage insurers to allow transportation without premium...if this becomes financially unviable for the LMI providers (there's only two currently utilising their licences in Australia, outside the likes of ANZ/ Wesptac in-house), then we could see the return to 80% max lends

    ...and with a loan book of approx 80% being >80% LVR, I wouldnt want to see this happen!

    Transparency is vital (so agree with industry comment yesterday), but transportable LMI policy (no new premium) is a high risk move for our industry

  • JohnW | 24 Apr 2013, 11:35 AM Agree 0
    No. But if it has to be offered, only if it is an opt in.
    No way Jose should it be blanket option, it would increase the cost to ALL LMI borrowers for the sake of a few.
  • Casey | 24 Apr 2013, 11:50 AM Agree 0
    I can see both sides here. Consumers who will always chase cost reductions on fees they find hard to perceive value in and Insurers who are concerned about risk at every change.

    I think a more fluid model, similar to doing a variation increase, would work for all parties. Obviously if the client settles land at 90% and then seeks construction up to 90%, then LMI is topped up.

    So in a similar sense a change to, security structure or lender, would invariably cause a re-assessment and therefore should trigger a top up. Or at least a minimum fee for work done, if risk has actually reduced. Instead the application attracts a whole new premium for a component they had already paid. Why can't the consumer gets a reduced premium top up or fee for assessment and the MI provider is still reasonably covered, having clear understanding of the changes in risk.

    Similarly if the clients circumstances haven't changed nor security and they are simply chasing better banking terms with another lender then MI should reasonably charge a fee for re-assessment instead of gouging a whole new premium. No change in borrower and no change in security, only the lender. Let's be honest. That is by far the lowest risk variable that the MI provider is going to see. Yet for anyone over 80% it's the biggest barrier to better terms.

    Consumers as a whole aren't ignorant to banking costs anymore. It doesn't take much for them to realise that Bank A and Bank B have the same MI provider. "So why am I paying this all over again? I've already paid them once!"

    The reality is, MI is risk testing the borrower. There is some risk testing of lenders and security at a higher and broader level. But on an individual application basis, they are really risk testing the borrower. Why do fees regularly get doubled up when the borrower hasn't changed, only the bank or the security.
  • Patrick | 24 Apr 2013, 12:05 PM Agree 0
    Transfer would only be viable for refinance (same borrower same property) possibly including a loan increase if the borrower qualifies and where the incoming lender has a relationship with the existing insurer. Of course the insurer will do a credit assessment and will have an updated valuation, as these will have been required by the incoming lender. The idea is simply that the borrower would get some credit for the unexpired portion of the original LMI underwriting and should only pay an appropriate LMI Variation Fee to reflect any cjhanges in teh assessed risk. If the borrower elects to use a new lender where there is not a relationship with the existing insurer, well a new premium would apply and this must be a commercial decision subject to full dicclosure of product change costs, advantages and disadvantages in the Credit Proposal as required for an SOA recommending product changes issued by a financial planner.
  • Peter White - FBAA National President | 24 Apr 2013, 03:30 PM Agree 0
    Just for clarification, the FBAA has been the one at the front of challenging this at industry and government levels and I think it would be worthwhile in a consolidate fashion to understand where we sit on this.

    Portability is keeping the same LMI provider and of course only for refinances. The risk would need to be reassessed and considered whether or not it's take on - one would imagine there would be a small processing fee for this. Any adjustment upwards if accepted to take on would then be the difference between what was paid and what's now deemed as due. We only have two LMI providers as such in this country and generally lenders accept both or if not they all write the same basic rules in principle for assessment. There is obviously much discussion to be had on this and remember this is just a simple overview of consideration - not a plan of action.

    One thing to remember, LMI portability exists today just not in Australia !

    Think of it like car insurance: you have a VW financed through ESANDA and insured with NRMA. You trade it in on a BMW financed through BMW Finance and keep your insurance with NRMA. You still have an asset securing finance and pay the difference on the up-swing on the insurance with your current insurer. In principle a generalised parallel thought process.

    How could would it be to tell your client whom your trying to refinance that although they have in the past paid LMI of some $10k, that now under new structures it will only be $1k (or the like), can also be the difference making or breaking a deal !
  • Positive Broker | 24 Apr 2013, 03:56 PM Agree 0
    Good analogy Peter but in a vehicle insurance policy the insured is the owner of the vehicle. In an LMI policy the insured is the lender. They simply pass this cost on to the borrower. So when you sell your car the insurance doesn't go with the vehicle. I guess these are all issues that need to be worked though
  • Chris C | 30 Apr 2013, 09:24 AM Agree 0
    LMI is approved on a loan for for the life of that loan. Not so sure on 'portability'; would require assessmnent around debt service and security again; but with any 'refinance' of the same loan with no changes, I think LMI should be able to be moved to the next Lender on that same loan - supports the intention to be able to transfer between Lenders. Currently, LMI is not allowing this because borrower has to pay another LMI premium for the same loan.....renders it not cost effective to proceed.
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