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

Ashton, John K.; Hudson, Robert S.

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.

Citation

Ashton, J. K., & Hudson, R. S. (2017). The price, quality and distribution of mortgage payment protection insurance: a hedonic pricing approach. The British accounting review, 49(2), 242-255. https://doi.org/10.1016/j.bar.2016.07.003

• Journal Article Type: Article
• Acceptance Date: Jul 30, 2016
• Online Publication Date: Jul 31, 2016
• Publication Date: 2017-03
• Deposit Date: Aug 12, 2016
• Publicly Available Date: Aug 1, 2018
• Journal: The British accounting review
• Print ISSN: 0890-8389
• 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
• Public URL: https://hull-repository.worktribe.com/output/442170
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0890838916300191
• 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.
• Contract Date: Aug 12, 2016