Homeowners to receive £60m PPI mortgage insurance refund

Homeowners to receive £60m PPI mortgage insurance refund

Mortgage payment protection insurance providers that have raised borrowers' premiums or reduced the level of cover will have to pay back around £60m to consumers, the City watchdog announced today.

There are around 2m mortgage insurance policies in force covering a borrower's repayments should they become unable to meet them, usually as a result of redundancy or illness. As the recession hit, many firms began to increase premiums because of the risk of increased claims, while reducing the level of cover available, with around 1m policies affected in 2009.

The Financial Services Authority announced a package of measures to protect consumers from unfair changes to their policies after talks with trade bodies and companies.

Under the agreement, firms will be obliged to refund increases in premiums and to reverse any reductions in cover for consumers whose policies were changed this year. The insurers will have to reinstate policies if customers cancelled them within two months of a hike in premium or cut in cover this year, and will have to freeze premiums and the level of cover for existing customers for the rest of 2009. They will also have to amend contracts to ensure customers are clear about the circumstances in which their cover and premiums might be changed.

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The latest moves against mortgage insurance follow a review of the entire market for payment protection insurance where the regulators believes there have been many cases of mis-selling. Many consumers are pressured into buying insurance they do not need.

Last month, the FSA announced that companies selling payment protection insurance alongside loans and credit cards would have to review 185,000 complaints they had rejected since July 2007.

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."

Adam Phillips, chairman of the Financial Services Consumer Panel, applauded the move. "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."

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