Brokers should be offering mortgage protection insurance as part of their responsible lending requirements, is the call from one provider.
While brokers are supposed to make reasonable enquiries on whether a customer can afford a loan at the time, there are no provisions in place to check whether they would be able to afford repayments should anything happen in the future.
Huy Truong from ALI said brokers should be having that risk discussion with customers and informing them that mortgage insurance is available.
He said, “It really is incumbent on the broker when they’re ascertaining a client’s financial circumstances on the loan to then have a follow up question. To say, both your incomes are required for the next 30 years to support this loan, what if something were to happen to you?
“In the past a lot of brokers said well that’s an add-on question or a separate discussion around insurance, whereas in reality borrowers think that it should be part of the conversation.”
Truong said mortgage protection gives customers piece of mind, but the biggest benefit is when something happens and it comes time to claim.
He said, “If I look at the last three months only, we have paid out over $4m to 27 different clients of mortgage brokers.
“The number one reason for the claim is because the client was struck by cancer. You’d be surprised how little health insurance covers treatment of significant illnesses.”
The three areas mortgage protection will cover are involuntary unemployment, major illness and death.
Truong added, “As we get older in life we know more and more people at work, school, families or friends who have been impacted by a major illness. And with so much economic change, its increasingly common to know people who have been made redundant in their job.
“Unfortunately it takes a broker to be personally impacted to realise that risk is not a hypothetical concept. These risks and subsequent impact are real.”
The CEO said he has come across many brokers who do not believe it is part of their role to discuss risks and protection with their customer, even though the very loan product they are providing is in place for the majority of someone’s working life.
This is a real shame, he said as for most people their mortgage broker is the only finance professional they will come into contact with, so who else will have this risk discussion with them?
He said, “In an ideal world all home buyers should see a financial adviser who can go through all the ins and outs of personal risks and insurance options, but have a guess at what percentage of Australians between 20 and 35 do receive financial advice from an adviser?”
The Australian Financial Review recently published a report showing only 4% of this age group saw a financial adviser and Truong said it was no surprise.
At ALI, the group only deals with mortgage protection cover through brokers and it currently deals with around 4,500 of them, offering generous commission for each loan protection policy written.
Truong added, “We only exist to help mortgage brokers protect their clients. We don’t do funeral insurance, pet insurance, we don’t deal with financial advisers, we don’t go direct to the clients.
“All we do is mortgage protection. We have designed our product to be built for mortgage clients so it doesn’t require any medicals or invasive questions. Our systems are set up so that the brokers can submit or lodge a policy in two or three minutes.”
Discussing recent concerns over insurance add-ons in the Royal Commission, Truong said ALI emphasises that its products are offered by brokers in a very educational way. Also, compared to some products criticised by the Australian Securities and Investment Commission (ASIC) which were paying out less than $0.10 for every dollar of premium collected, Truong said ALI pays out around 40%.
He added, “Brokers need to be confident the ALI solution is high quality and I think we have demonstrated that’s the case.
“So to summarise why do we believe risk and protection should be considered part of responsible lending? Loan serviceability is an issue for 30 years and life events such as illness and employment have a direct impact on financial position and loan service.
“Further, brokers are uniquely placed to have that discussion as they are arranging the loan and brokers have access to a high quality solution that allows them to protect clients easily.”