In June City watchdog Lord Turner attacked insurers for threatening to water down unemployment protection on mortgages. He warned her would investigate any attempt to push through price rises due to the recession.
The chairman of the Financial Services Authority warned that companies were risking repeating past scandals such as the mis-selling of endowment mortgages.
There has been concern that the insurers plan to increase prices for customers with mortgage payment protection insurance and restrict the scope of policies to reduce payout costs, ahead of an expected surge in unemployment in the second half of the year.
If the insurers were to go ahead with this move they have been warned that it could provoke an angry response from customers, which the regulator would need to take seriously.
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.
The warning was brought about after the Post Office gave 30 days notice that it also planned to reduce the level of cover from a maximum £2,500 a month to £1,500. Claimants would also have to wait 90 days after stopping work before receiving any money compared to the previous 30 days.
The FSA have been investigating the mis-selling of payment protection insurance on loans and credit cards and have recently ruled that the issue is so bad that it banned the sale of PPI until at least 14 days after the loan has been taken out.
Lord Turner said he would not hesitate to repeat the enforcement measures on insurers that contravened rules on the sale of mortgage payment protection
Via The Guardian