MPPI firms set for refunds

Mortgage payment protection insurance (MPPI) providers are preparing to refund customers who were subjected to unfair premium increases or reductions in benefits that led some policyholders to cancel their cover.

A number of distributors, including banks and insurers, have been in closed talks with the Financial Services Authority (FSA) after the regulator raised concerns over the poor treatment of holders of MPPI policies, potentially running into the millions.

As unemployment levels spiralled upwards, many policyholders were shocked to be given notice that
their premiums were rising by between 40 per cent
and 100 per cent. Some insurance providers even withdrew cover altogether or reduced the monthly benefit that the policies would pay to cover a home loan repayment.

Last month, the FSA began contacting providers to warn them that it “expected changes” where it thought customers had been poorly treated.

It raised concerns over unfair contract terms, disclosure and its principles for treating customers fairly.

The FSA declined to comment on the response to its action, saying that it was still “seeking to reach agreement” across the industry to ensure that MPPI customers are treated fairly.

But one leading MPPI provider indicated this week that it was likely to compensate its 220,000 customers who were subject to premium rises of 20 per cent.

“The price increase that we put through in January was one of the lowest in the industry and, as far as we were concerned, we were acting fairly and within the terms and conditions of the policies,” said Sandy McPherson, head of marketing with Paymentshield.

“If, however, the FSA rules otherwise, we will comply with its ruling, he said.”

McPherson added: “It is likely that there will be some refund. If a customer had cancelled their policy because of the price increase, then we are
likely to offer to reinstate this.”

Paymentshield said the “vast majority” of its customers did not cancel after the price revision, which added about £5 per month to a typical premium.

Paymentshield is the first provider to indicate its response to the FSA’s intervention. Other companies said they were still in discussions with the FSA.

“We are aware of significant efforts being made by the industry to address and resolve the issues that have been raised and we will play our part in those discussions and keep our customers informed of any developments that affect them,” said the Post Office.

In April, the Post Office drew criticism for not only raising premiums, but also reducing the monthly benefit for its existing Lifestyle Protection policyholders from £2,500 to £1,500.

It also extended the waiting period before a claim would pay out from 30 days to 90 days.

“We will continue to work closely with our partners at Bank of Ireland, and
with the Lifestyle Protection product provider, Axa, to work through any points that may be relevant to our product and our customers,” the Post Office explained.

Aviva, the country’s biggest insurer, said it was considering the implications of the FSA’s proposed changes to MPPI and was in ongoing discussions with the regulator.

“This is a serious issue and we are working closely with the Association of British Insurers, the industry and the FSA to find a positive solution for all parties,” Aviva said.

The FSA’s intervention followed a speech by Lord Turner, the FSA chairman, to the insurance trade body in June in which he asked: “How many consumers would have taken up this cover [MPPI] if they had known that at the very time they needed the protection, the most, the price of it could significantly increase or the amount of cover decrease?”