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The price, quality and distribution of mortgage payment protection insurance: a hedonic pricing approach

Ashton, John K.; Hudson, Robert S.

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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.

Journal Article Type Article
Publication Date 2017-03
Journal The British accounting review
Print ISSN 0890-8389
Electronic ISSN 1095-8347
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 49
Issue 2
Pages 242-255
DOI https://doi.org/10.1016/j.bar.2016.07.003
Keywords Mortgage payment protection insurance; Mortgage credit insurance; Insurance premium setting; Product quality
Publisher URL http://www.sciencedirect.com/science/article/pii/S0890838916300191
Copyright Statement ©2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Additional Information This is the accepted manuscript of an article published in The British accounting review, 2017. The version of record is available at the DOI link in this record.

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Copyright Statement
©2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/



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