FSA chairman warns mortgage protection insurers

June 16, 2009 by Brendan

News

Earlier this week, the chairman of the FSA, Lord Turner publicly attacked insurance agents for making threats to water down their mortgage protection for unemployment and stated that he would investigate any attempt to increase prices as a result of the recession.

We have seen mis-selling scandals in the past over endowment mortgages and this scandal is still a large feature of CeMAP training courses. Lord Turner warned insurers they could be in danger of repeating this mistake with unemployment protection.

With unemployment at record high levels, concern has been shown that insurers may increase the prices of mortgage payment protection insurance (MPPI) and even reduce the level of cover in order to reduce the costs they face with the expected rise in unemployment that may still come later this year.

The Association of British Insurers is the regulator for the industry and at a conference organised by the ABI Lord Turner said:

“Whilst it is natural for the industry to respond to changes in risk, this raises issues with both unfair contract terms, disclosure and our ‘treating customers fairly’ principles. How many consumers would have taken up this cover 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?

“This is an area where insurers must expect us to intervene to address poor consumer outcomes. And more than that they must think strategically about the impact of their actions on the sector’s reputation.”

Earlier this year, the Post Office gave 30 days notice that it would be reducing the level of cover from £2,500 per month to just £1,500 and increasing the delay following unemployment for a claim from 30 days to 90 days. It is said that it was this move that prompted Lord Turner’s comments.

MPPI is an insurance that mortgage advisors are able to sell and features largely in CeMAP training.