FSA and firms reach agreement on MPPI

The industry has acted in response to FSA concerns over recent increases in premiums and reductions in what customers are covered for under their policy. The FSA's concerns centred on the terms permitting these changes, and how clearly they were disclosed. The FSA expects its concerns to be addressed by the agreement reached.

Following discussions initiated by the FSA with relevant trade bodies and some firms, the industry has responded positively by agreeing to:

proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy in 2009;

offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during 2009;

freeze premiums and cover for existing customers for at least the remainder of this year; and

amend MPPI contracts to ensure that all customers are made aware of the circumstances in which firms have the right to vary premiums and cover.

Jon Pain, managing director of supervision at the FSA, said: "The FSA welcomes this positive move by MPPI firms to reverse recent changes in premiums or cover which will put affected customers back in the position they were in before the policy was changed. It will also give all MPPI customers clarity about when and why firms will be able to vary these in future.

"This clarity will provide the basis for MPPI to remain a valuable option for many mortgage customers who wish to take out protection, alongside the mortgage commitment they are taking on."

Firms will contact customers if their policy is affected, and will make all refunds by the end of June 2010.

Adam Phillips, Chairman of the Financial Services Consumer Panel, said: "This is exactly what a financial regulator should be here for and we applaud the FSA's action. It cannot be right that firms change the terms and conditions of an insurance policy just as times get hard and when people are more likely to try to claim on it.

We note that this agreement is to freeze premiums and cover for existing customers until at least January 2010. We will be watching to see how the FSA ensures MPPI customers continue to get a fair deal beyond this date. Significant changes to cover go against the whole principle of why people pay for insurance and undermine consumers' trust in the industry."

Which? personal finance campaigner, Lucy Widenka, added: "We're pleased that the FSA has taken action against firms who've effectively been selling people umbrellas then trying to take them away at the first sign of rain.

"Customers must be refunded as quickly as possible, as many could be in financial difficulty as a result of their cover being reduced. What's more, offending firms must be named to make MPPI policyholders aware that this could affect them.

"The fact remains that MPPI is not a great product - just 28% of premiums collected are paid out in claims - so we'd urge consumers to shop around for a product that best suits their needs, or consider an alternative to MPPI to protect their finances as a whole."