The Price, Quality and Distribution of Mortgage Payment Protection Insurance: A Hedonic Pricing Approach

Bangor Business School Working Paper No. 11/011

26 Pages Posted: 16 Jan 2012

See all articles by John Kevin Ashton

John Kevin Ashton

Bangor Business School; University of East Anglia (UEA)

Robert Hudson

Hull University Business School (HUBS)

Date Written: November 1, 2011

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. Recently the provision of this service in the UK has been heavily criticized for providing poor value for money and for being associated with unhelpful sales techniques especially when sold jointly with a mortgage. Consequently in 2009 the Competition Commission ruled that MPPI should not be sold jointly with lending. In this study we examine whether this prohibition was justified and specifically does the form of distribution, either jointly with the mortgage or independently influence the premium levels. This research question is examined using a hedonic pricing approach with details and premiums of 281 MPPI policies. We conclude that the premiums of policies sold independently are lower than those policies distributed jointly for a given set of benefits and conditions. These findings support to the prohibition of the joint sale of the MPPI with mortgages.

Keywords: mortgage payment protection insurance, mortgage credit insurance, insurance premium setting, joint pricing, banks, other depository institutions, micro finance institutions, mortgages

JEL Classification: G21

Suggested Citation

Ashton, John Kevin and Hudson, Robert, The Price, Quality and Distribution of Mortgage Payment Protection Insurance: A Hedonic Pricing Approach (November 1, 2011). Bangor Business School Working Paper No. 11/011. Available at SSRN: https://ssrn.com/abstract=1986012 or http://dx.doi.org/10.2139/ssrn.1986012

John Kevin Ashton (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Robert Hudson

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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