Brokers welcome move after concern over increase in premiums
The FSA has forbidden insurers from hiking mortgage payment protection insurance premiums in response to the financial crisis.
In a letter sent to market leaders and trade associations this week, it said current moves to raise premiums were not in the best interests of customers and warned rises must be proportionate.
The development has been welcomed by brokers, who were concerned at the rise in premiums – in some cases, by as much as 50%.
One broker said: “It’s ironic that the FSA is now backing up what we have been saying for months.”
An FSA spokesman said: “As the likelihood of unemployment-related claims increases, some insurers are responding by increasing premiums or reducing cover for existing policyholders.
While it is natural for the industry to respond to fluctuations in risk, the recent changes in premium/cover raise concerns with unfair contract terms, disclosure and the FSA’s treating customers fairly principles.
“This is an area where insurers can expect the FSA to intervene to address poor consumer outcomes. The FSA is in contact with relevant firms and trade associations, and is seeking to reach agreement across the industry that will ensure MPPI customers are treated fairly.”
An ABI spokesman said: “ABI and other trade associations attended a meeting with FSA to discuss MPPI premiums and discussions are continuing.”
In April, research firm Defaqto predicted PPI premiums would rise by 50%, following price hikes of 170% in the past 12 months. More insurers would cut payouts, increase monthly charges or cancel cover for existing customers with as little as 30 days' notice, it said.
Biba’s head of technical services, Peter Staddon, blamed banks, building societies and credit card companies for problems in the PPI market and said he was currently talking to two large brokers about increasing intermediated distribution in the sector. “This is a product that people need, and brokers ought to look at it because we are the professionals in this game,” he said.
A number of major insurers provide MPPI cover. Aviva is the largest, but was not available for comment at the time of going to press.
PPI has been under the regulatory spotlight for some time, with a 2008 report from the Competition Commission claiming the industry was failing consumers. Earlier this year, the sale of PPI policies alongside loans was banned at the point of sale was banned.
See analysis: PPI hardline from FSA