Some insurance companies dealing with mortgage endowment complaints are making it difficult for customers to pursue compensation, according to the Financial Ombudsman Service.
The FOS, which deals with consumers' complaints against financial services companies, has referred some companiesto the Financial Services Authority, which is reviewing their handling of endowment complaints.
“With some of the complaints we get, the firms aren't following guidance laid out by regulators,” says Allison Hoyland at the FOS.
The FSA will not say how many companies it is reviewing or name them. However, about £1bn has already been paid in compensation or set aside by companies found guilty of mis-selling. Under FSA guidelines, consumers have the right to complain if their financial adviser or sales intermediary did not explain how their money would be invested, what the risks were or that returns were likely to be reduced if policies are cashed in early.
The FOS says more than half of the complaints it receives relate to mortgage endowments investment vehicles that are intended to repay investment-only mortgages. These endowments have performed poorly in recent years.
Between December 2003 and March 2004 alone, the FOS received 71,406 complaints about endowment policies, taking the total to 452,201.
Endowment Justice, a group that helps consumers claiming compensation for endowment mis-selling, says that about 60 per cent of the estimated 8.5m policyholders feel they were given poor guidance. The Commons Treasury committee estimated average shortfalls at £5,000 per policy.
Marianne Fitzjohn, director of Endowment Justice, says that up to 600 consumers seek help every month, but insurance companies' responses vary a lot. She praises Jonathan Bloomer, chief executive of Prudential, who apologised to the Commons Treasury committee in January for any mis-selling by the company. However, she says that Halifax, the high street bank, is top of her blacklist because of its failure to adhere to time limits.
Halifax rejects Fitzjohn's claims, accusing Endowment Justice of having a vested interest in stimulating complaints. “I would be surprised if that's [failure to keep within limits] the case. The eight-week time scale is important and we will work within that time scale,” an official insists.
The FOS also came under fire from Andrew Moore, co-founder of EndowmentClaims.biz, another campaigning organisation, who claimed it was ineffectual at handling consumers' complaints.
Moore says the FOS is overburdened with cases. “First-level adjudicators are often unable to identify the real issues which should cause a claim to be successful.” Hoyland concedes that the FOS is taking longer to process claims, but adds that the extra time results from the steep increase in the number of complaints. In response to this increased volume, the FOS has implemented a customer contact line and a separate department solely responsible for endowment inquiries, says Hoyland.
Many mortgage endowment policyholders were dealt another blow this month when Standard Life, Europe's biggest mutual insurer, reneged on a guarantee that customers' policies would pay out in full.
The withdrawal of Standard Life's “mortgage promise”, made four years ago and abandonedas it became apparent that some policyholders' endowments would not grow enough to pay off their mortgage, will save the company £100m a year.
It means that more than 600,000 customers whose endowments are due to mature after the end of next year no longer have a guarantee that the company will meet a commitment to pay any shortfall between their policy's final value and their mortgage.
Standard Life's decision has led to fears that other companies that have offered guarantees would follow suit. However, Norwich Union says its promise is safe for the time being and that it will give customers three years' notice if this is to change. Two of the smaller companies, Liverpool Victoria and NFU Mutual, have reiterated their guarantee to cover the full amount.
