Home loan insurance providers have clashed with the City regulator over concerns that they are imposing steep premium rises, or reductions in policy benefits, just as many customers are more likely to make a claim.
Mortgage Payment Protection Insurance (MPPI) is designed to meet mortgage repayments for about 12 months if the policyholder is unable to work due to accident, sickness or involuntary unemployment.
But with the jobless rate spiralling upwards, many existing MPPI policyholders have been startled to receive notices of premium increases of up to 70 per cent, or significant reductions to their cover.
The Financial Services Authority (FSA) recently met insurance, banking and lenders’ trade bodies to discuss its concerns over “poor consumer outcomes” in the MPPI market.
“Whilst it is natural for the industry to respond to fluctuations in risk, the recent changes in premiums and cover raise concerns over unfair contract terms, disclosure and the FSA’s Treating Customers Fairly principles,” the FSA said.
The FSA would not disclose what was discussed at the meeting, held last week, but said it was “seeking to reach agreement across the industry that will ensure MPPI customers are treated fairly”.
The trade bodies, including the Association of British Insurers (ABI), the Council of Mortgage Lenders (CML) and the British Bankers’ Association (BBA), declined to comment on the FSA meeting.
The FSA’s intervention follows a speech by Lord Turner, FSA chairman, to the insurance trade body earlier this month when 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?”
Earlier this year, the ABI said a sharp rise in numbers claiming on the unemployment element of payment protection insurance (PPI) policies showed how valuable the cover was in tougher economic times.
About 34,000 PPI claims were made in February this year, compared with 12,000 in the same month in 2008.
But the rise in claims has corresponded with significant policy changes. Premium increases of 30-50 per cent have not been uncommon for PPI and MPPI. The steepest rises have been for a type of PPI that pays out only for unemployment, a product often bought because it is cheaper than combined accident and sickness cover.
But some insurers have gone further than simply raising premiums.
The Post Office in April extended the deferment period on its Lifestyle protection product from 30 to 90 days and reduced the maximum monthly benefit from £2,500 to £1,500. Hitachi Capital Insurance was accused of “outrageous” behaviour after cancelling MPPI policies of more than 70 customers. Some policies can now only be bought within 30 days of remortgage.
Consumer groups do not believe that policyholders should have their safety net stretched when times are tough. “Consumers have paid premiums during good times – providers shouldn’t increase prices, or reduce cover, when times get bad,” said Vera Cottrell, personal finance campaigner at Which?
This is the first time the regulator has intervened in the MPPI market – it hitherto focused on the broader PPI sector. Its action comes less than two months after companies were ordered to withdraw single premium PPI from sale because of misselling concerns.
