Clawbacks And Cover

Inflation is back in the headlines, but the real story shows up in your clients’ bank accounts and in your clawback reports. When fuel, energy, and food costs rise at the same time as mortgage rates, people start cutting anything that feels optional and protection insurance is often first on the chopping block. I want to stop that knee-jerk decision before it harms the client’s home security and before it hits your income through indemnity commission clawbacks.

I break down the three pressures shaping the market right now: rising living costs, higher mortgage rates with fewer products available, and the knock-on effect on protection budgets. From there, we get practical about why cancelling life insurance, critical illness cover, or income protection is usually short-sighted. Clients lose the benefit of locked-in premiums, and reapplying later can mean higher costs or tougher underwriting. The better move is almost always a review and a reset: reduce the sum assured, shorten the term, or restructure cover so something stays in force.

We also dig into a moment that drives lapses every year: the annual policy anniversary statement. If clients call the provider first, “quick fixes” can turn into cancellations. If they call us first, we can explain what changed, check suitability, and present affordable options that keep them protected. I share a simple playbook for proactive anniversary reviews, budget reprioritisation, staying visible with regular updates, considering non-indemnity or mixed commission, and documenting everything to support Consumer Duty.

If you want fewer clawbacks and stronger client trust during a cost of living squeeze, press play. Subscribe, share this with a broker who needs it, and leave a review with the one process you’re tightening up this month.

I help employed mortgage brokers go self-employed with clarity, confidence and one-to-one mentoring. Find out how Pathways or Coaching works at craigskelton.co.uk

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Transcript

Welcome And The Real Problem

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Hi, and welcome back to this week's The Mortgage Broker broadcast. I'm your host, Craig Skelton, and this show is for mortgage brokers and business owners who want to build sustainable businesses without losing the sight of why they start things in the first place. We talk about mindset, habits, and the realities of being self-employed. Over the past few months, we've explored how annual reviews, sustainable commission structures, and good habits help you to build a resilient business. However, as we're heading towards the end of April, there's something else sort of going on right now. Inflation has spiked again, driven by the combination of the global events, including conflict-related supply shocks and lingering supply chain issues. These pressures have pushed up oil, gas, and fertilizer prices. And those increases are filtering through to everything, as we know, from petrol to heating bills and even the price of bread. Experts predict that typically dual fuel energy bills are set to rise by about 20% this summer. At the same time, we've seen mortgage rates have been increasing. And when this was recorded, the average two-year fix rate has crept up to around 5.3%. Not much difference on the five-year deals, but they are, they have been going up. People whose fixed rate deals ended this year have been scrambling to secure new rates. And when budgets are tight, it's tempting for clients to cut back. And one of the ways that they see to save money is on their insurance policies. So for brokers who receive indemnity commission, every council policy carries the risk of clawbacks. So a repayment of the commission if the policy lapses early. So today's episode is about this latest inflation shock, keeping your clients protected and safeguarding your own income. We'll also talk about why you should be the first point of contact when clients receive their annual statements from the providers, and why clawbacks are on the rise within the industry. So what's happening right now? Well, the current environment has three distinct pressures: rising living costs, so fuel prices jumping sharply, petrols up, diesel's up, higher transport costs push up the price of goods as well. Food inflation, which has been easing and is expected to increase because obviously farmers are facing higher fuel and fertilizer prices. There's also higher mortgage rates and fewer products out there on the market as well. In just a few weeks, nearly a thousand products were vanished and lenders were sending out several emails daily on rate changes. Two-year fixed rate was up. So for borrowers who, with a mortgage of say£250,000 over 25 years, it could have added around about£900 per year to those repayments. And then this pressure on insurance budgets. The last cost of living crisis back in 2023 did teach us a lot because back then the FCA reported that one in five adults either cancelled or avoided buying protection because they felt that they couldn't afford it. 13% of policyholders back then either cancelled or reduced their cover. So these cancellations back then led to a surge in clawbacks. For many advisors and many networks reported higher clawback repayments. So with inflation rising again, mortgage payments increasing again, there's a real risk that we'll see another wave of cancellations and another spike in the clawbacks. So why is your role so critical in all this? It's understandable that clients might want to cancel their protection policies when everything else is going up, but there are three real reasons why that's short-sighted. The first thing is protection is more important when budgets are stretched. Higher mortgage payments, soaring household bills, leave less room for emergencies, and people end up tapping into their emergency funds. So life, kick, IP policy provide that vital financial cushion. If a client dies or is unable to work, the payout helps ensure that their family can keep up the room. Mortgage repayments and keep up with the living costs. But more importantly, most importantly, keep their home. Another reason is cancelling now will cost more later. When a client cancels a policy, they lose that locked-in premium. And as we know, if they reapply later, they'll be older, possibly less healthy, which means higher premiums. Keeping a scaled-down policy is far better than losing cover entirely. Do your all your clients know that? Ask yourself, do all your clients know that they could actually look at replacing or adjusting the cover rather than cancelling it full stop? Because, and the thing is, clawbacks hurt your business. If you've taken your commission up front, early cancellation forces you to pay some or of all of it back. And with more clients struggling, clawbacks arising across the industry. Protecting your income means helping clients keep their cover in force wherever possible. Let's look at annual statements and why clients should call you first. As we know, insurance sends policy anniversary statements out. These statements summarize values, premiums, and in some cases illustrate future premiums or benefits. And it's cla it's tempting for clients just to contact the provider directly when they see change in premium or a change in benefits. Instead, they need to be calling you, encourage them to call you. You need to be the point of contact. You can explain what the statement means, check whether the policies still fit for purpose, and explore options for adjusting cover rather than just cancelling. And this approach strengthens the advisor-client relationship and helps prevent unnecessary clawbacks. So, how do you help clients and protect your income? First thing is to do is proactively schedule reviews at the anniversary time. Make the most of these annual statements, reach out to your clients when you know their policy anniversary is approaching. Quick call or a meeting can reassure them and give you an opportunity to discuss their current financial position, their current finances, protection needs, and mortgage situation. The second thing is then adjust coverage, don't cancel. If a premium feels uncomfortable, adjust you can reduce the sum assured, shorten the term, or switch into a different product. Something is better than nothing. Although a premium keeps the protection in place and reduces clawback. And the third thing is to consider non-indemnity or a mixed commission. If cancellations rise, taking more policies on a non-indemnity or accrual basis or drip basis reduces the risk of clawbacks. You receive your commission over time instead of upfront, build a sustainable income stream. You can still use indemnity for smaller policies or when you need quick cash flow. And the fourth thing to do is re-prioritize budgets. Many households are cutting discretionary spending, things like eating out, going out, subscriptions, and non-essential shopping. Encourage clients to see protection as a priority rather than that optional extra. Help them cut costs and on their monthly savings elsewhere. So you don't need to cancel cover. And the fifth thing is stay visible. Send regular updates on interest rates, inflation, protection. Use video, email, social media to remind clients that you are there to help. The more visible you are, the more likely clients will call you before cancelling a policy. And the last thing is document everything. Keep notes of every conversation about cover and affordability. This protects you under consumer duty. And ensure that if a client does cancel against your advice, you can demonstrate that you did offer advice and you did talk about doing the right thing. So with rising inflation and mortgage rates, everything can feel very overwhelming. As a broker, focus on what you can control. Your communication with your clients, your processes, and your mindset. When you build routines and processes like reaching out before policy anniversaries and conducting annual reviews, you create stability in uncertain times. Remind yourself that your work has purpose. You're helping families stay financially secure and when the world around them is unpredictable. So what are the key takeaways from today as we head into a new cost of living squeeze? Remember, inflation and energy costs are rising, pushing up mortgage rates and household bills. People looking for savings everywhere they can. Mortgage products have shrunk and rates are climbing. Insurance cancellations are increasing, leading to more clawbacks. Policy holders receive annual statements at policy anniversaries and should contact you, not the provider, when they have any questions. Your role is vital. Help clients to just cover instead of cancelling. Explore flexible options and consider non indemnity commission to reduce clawback risk. So that's it. That's this week's podcast. Remember, your clients rely on you to guide them through this. Be proactive, be visible, and run your own race.