Concern over unemployment insurance
Updated on 29 June 2009
The City watchdog has expressed concerns that consumers with unemployment insurance are not being treated fairly.
The Financial Services Authority said a number of insurers had recently increased the premiums charged for mortgage payment protection insurance (MPPI), or reduced the level of cover offered by the product.
The changes come at a time when rising unemployment makes it more likely that people will need to claim on the product, which covers mortgage interest payments if holders are unable to work due to an accident or illness, or if they lose their job.
Some insurers have increased premiums for PPI for both mortgages and other debts by between 30% and 50%, while jumps of 70% have also been reported.
Companies have also reduced the benefits offered by the cover, with the Post Office recently cutting the maximum payout per month from £2,500 to £1,500 for existing customers, and increasing the waiting period before people could receive money from 60 days to 90 days.
The regulator held a meeting with a number of trade bodies, including the Association of British Insurers, the British Bankers' Association and the Council of Mortgage lenders last week to express its concerns.
An FSA spokeswoman said: "As the likelihood of unemployment-related claims increases, some insurers are responding by increasing premiums or reducing cover for existing policyholders.
"Whilst 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 the FSA to discuss MPPI premiums and discussions are continuing."
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