U.K. Regulator, Trade Groups Agree on Mortgage Protection Cover

Four organizations representing the U.K. financial services sector have reached agreement with the U.K. Financial Services Authority on the treatment of mortgage protection payment insurance customers.

The FSA has estimated that customers may be in line for refunds worth about 60 million pounds (65 million euros).

The goal of the agreement, the four organizations said in a joint statement, will be "to reassure customers, minimize market confusion, maintain confidence in MPPI and ensure that people who have MPPI can maintain their cover, especially in these times of continuing economic uncertainty."

The trade groups are the Association of British Insurers, the British Bankers Association, the Building Societies Association and the Council of Mortgage Lenders.

"This is the start of the process," said Malcolm Tarling, a spokesman for the ABI, in a telephone interview.

The issue was highlighted by Adair Turner, the FSA chairman, before the ABI's biennial conference in June 2009. Turner had questioned premium increases and the tightening of cover that he said were occurring during the current economic downturn.

The regulator has focused on the clarity of disclosure and policy wordings that allowed for changes in conditions.

The agreement calls for insurers and mortgage providers to review their existing MPPI policies and promotional materials for compliance. They will then inform relevant customers of changes. Policyholders will not be required to initiate action.

Premium increases and changes in conditions made since the beginning of 2009 will be reviewed. Changes that do not meet with the agreement will be canceled. This stage in the process is due to be finished by June 30, 2010.

Providers will restore policies that were cancelled by customers within two months of the changes that were made. Premiums will not be raised for the rest of 2009.

"We don't want people to come off risk and find that they're without cover," Tarling said.

Stephen Haddrill, director general of the ABI, who spoke for the four associations, described MPPI as "an important product and is playing a key part in helping to keep people in their homes during the recession."

Haddrill said changes that providers make to the policies must be fair.

"These policies provide extremely valuable cover for customers," Haddrill said in a statement, "and this agreement is all about ensuring that they continue to do so."

Jon Pain, managing director of supervision at the FSA, said the agreement will provide "clarity" to customers.

"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," Pain said in a statement.