Endowment mis-selling

Prudential last week became one of the last big insurers to enforce a time bar on policyholders for lodging misselling complaints about their mortgage endowments.

Millions of borrowers bought endowment policies from banks, building societies and insurers in the 1980s and 1990s, believing they would help pay off their loans. It is estimated that 2m households are now facing shortfalls of up to £7,000 in their policies over the next couple of decades. Lodging a complaint too late is one of the most common reasons why claims are rejected.

My policy is projected to fall short and I want to complain. What should I do?

The Financial Services Authority advises you to first ask whether you have good grounds for making a complaint. The regulator says valid grounds for complaint could include if you believed the person who sold the policy to you did not explain that your savings would not necessarily pay off your mortgage in full and that this depended on investment performance. You could also complain if the adviser did not tell you how your savings would be invested and check that you were comfortable with the risks of an investment linked to the stock market.

If you think you have a valid complaint you should contact the firm which sold you the endowment policy immediately.

Why the urgency?

Unfortunately you don’t have the luxury of letting this one gather dust as there is a legal deadline that cannot be ignored. You have six years from the date you were sold the policy to complain, or three years from the date you realised you may have been missold. Once this “final” deadline has passed, it will be too late to complain – either to the firm or to the Financial Ombudsman Service – because your complaint will be “time-barred”.

How do I know if the three-year time-bar applies to me?

Most policyholders should have received letters from their endowment providers advising them if their policies were on track to pay out the mortgage at the end of the term or were at high or significant risk of shortfall. For mortgage endowments, the typical trigger for the three-year deadline is the receipt of the letter from the provider warning of a significant shortfall, also known as the “red letter”.

To protect your right to refer a complaint to the ombudsman – who can decide if your complaint was unfairly rejected by the firm who sold it to you – you must have made a complaint to the firm within three years from the time you first received a “red letter”.

I received a red letter but it didn’t say anything about a time bar.

This is because prior to June 2004, providers were only required to write to you and let you know about the projected returns from your policy. If you were projected to be in significant shortfall they could set out your options for making up the shortfall but you would not have been told in those letters that the clock had started ticking on your right to complain.

What happened after June 2004?

From this time the FSA required providers to explicitly advise policyholders receiving red letters of the “final date” for making a complaint. The provider was also required to write to the policyholder again at least six months before the end of the three-year period, reminding them of the deadline. Since June 2004, if a firm failed to provide that explanation within six months before the end of the three-year period, then the time for referring a complaint was also extended to at least six months after such an explanation was given.

So there could be people out there who don’t know about the time bar?

There has been a big campaign by the FSA and the insurance industry to raise awareness about time bars. But because of the way the old and new rules are mixing, hundreds of thousands of policyholders may still be unaware that time may be running out for them, having received no explicit warning of a deadline in their red letter.

Why did some providers strictly enforce time bars and others not?

Many insurers initially said they would not enforce time bars and instead chose to use their discretion to consider complaints lodged beyond the three-year time limit. However, commercial pressures have forced many now to impose “final dates”. Prudential was the last big firm to set a deadline, citing the need to protect its investors from open-ended claims.

Can I challenge the time bar?

The ombudsman is able to hear complaints about the imposition of time bars. It has upheld complaints by policyholders who took on their firms for not allowing them to file a complaint after the time bar due to exceptional circumstances. However, if you have a complaint about the imposition of a time bar, you must first complain to your provider. You only have six months from the date your provider rejects your complaint to lodge a complaint with the ombudsman. Firms can also object to the ombudsman hearing a complaint if they believe it to be time barred.

What if I can’t get the ombudsman to hear my complaint?

If you cannot resolve your complaint with the firm and the ombudsman cannot help, you may still pursue your complaint through the courts. One policyholder last month successfully challenged in the county court a time bar imposed by Friends Provident. However, there are costs to the policyholder of taking action in the courts and limits on the period within which you can bring a claim.

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