| PPI Refunds Coming Soon |
 MILLIONS of policyholders across the UK could be reimbursed for recent premium hikes in their mortgage payment protection insurance (MPPI) after the Financial Services Authority (FSA) demanded distributors pay back the rises.In a letter seen by The Scotsman, the financial watchdog warned a number of MPPI providers that clauses allowing them to increase premiums and change the level of cover provided with only 30 days' notice were unfair and in breach of contract law. MPPI covers payments in the event of accident, sickness or unemployment. In recent months consumers have seen premiums on existing policies rise and in many cases the level of cover reduced or even withdrawn. Most MPPI policies have a clause to the effect of: "We may at any time change any term or condition of this policy by giving 30 days' written notice of such change to you at your last known address." The City watchdog believes this clause is unfair under the Unfair Terms in Consumer Contracts Regulations 1999 and also believes many customers may not have been clearly told that their policy could be changed at such short notice. Its letter reminds firms of their responsibility not to distribute or market MPPI policies containing unfair terms and the need to provide clear and fair disclosure on all relevant information relating to the insurance and its terms. Where existing policies have been altered, the FSA expects firms to take remedial action and the letter states: "We expect any rise in premiums to be refunded to existing customers, and any decreases in cover to be reversed." If customers have cancelled MPPI policies because of unfair variations, the regulator expects them to be compensated. In practice this is likely to mean cancelled policies being reinstated at the original premium and level of cover. FirstAssist Insurance Services managing director Alistair Hardie predicted that the number of people affected would reach seven figures. Hardie said he knew of one company that had increased the premiums of all of its 500,000 to 600,000 customers. If the remedial actions outlined in the FSA's letter are forced through, all of those individuals could be refunded the extra premiums they have paid. Hardie said his own firm had maintained premiums and cover for existing customers at the levels outlined in the initial contract, although prices for new customers had been increased by up to 40 per cent to represent the growing risk of unemployment in today's stuttering economy. Others have increased premiums for new and existing customers alike and Paymentshield, one of the largest distributors in the market, increased prices by 20 per cent at the start of the year. Sandy McPherson, head of marketing at Paymentshield, said this was in response to the changing risk presented by unemployment and that the rise was less than those of up to 100 per cent that others in the market had implemented. McPherson commented: "Our underwriters, Aviva, withdrew standalone MPPI in January but we sourced another underwriter in the shape of Cardif Pinnacle. We are proud of the fact we have stayed in the market while others were pulling out." Whether Paymentshield is forced to reimburse all of its existing customers who have seen their premiums rise remains to be seen and the industry is still in talks with the FSA over its demands. Indeed, Hardie commented: "There could be quite a protracted debate with the FSA over this." Complaints relating to MPPI accounted for just 5 per cent of the payment protection insurance cases seen by the Financial Ombudsman Service (FOS) in the year to March, with the majority concerning single premium policies and those tied to loans and credit cards. Between April 2008 and March 2009, the FOS received over 31,000 complaints about PPI in general, up from more than 10,500 the previous year. Given the stance being taken by the regulator over MPPI, this is likely to have a significant effect on these figures in the months ahead. Emma Parker, a spokeswoman for the FOS, said reasonable grounds for complaint would rest on a number of things, such as whether the clause enabling policies to be changed is deemed to be fair in the first place, and whether customers were fully aware of it when they bought the policy. "If it has not been made clear how the pricing works or they were not aware of limitations, then they may have grounds (to complain]," said Parker. Her view was echoed by Sally Bowyer, managing director of financial claims company, Brunel Franklin. "In the case of MPPI, we would be concerned if a client felt the policy terms, conditions and exclusions had not been fully explained," said Bowyer. "For example, if they genuinely weren't aware that the premiums were variable or if any terms and conditions provided were so complex or the print so small that they could not reasonably be expected to read or fully understand them." The FSA is working with the MPPI industry to ensure its remedial measures are put in place. There are likely to be a number of challenges to the regulator's demands from an insurance industry that will not be keen to take on the financial and administrative burden that this work would entail. However those who have seen their MPPI premium or level of cover changed in the recent past will be hoping the FSA wins this battle on their behalf. Source: The Scotsman |
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