Mortgage PPI customers set for £60m refunds

Wednesday, 07 October 2009 03:48

Mortgage customers who have seen payment protection insurance premiums rise this year could be in line for refunds.

A deal between the Financial Services Authority (FSA) and the banks, building societies and insurers will see £60 million returned to customers on mortgage payment protection insurance (MPPI).

Concerns over the rising cost of PPI have led to the deal.

MPPI costs have risen as the recession has bitten and the risk of customers making a claim has risen - just as younger drivers have higher car insurance premiums as they are more likely to crash.

However, it was feared the hike in rates would put people off getting cover, putting them at greater risk.

The industry has been told to proactively refund customers and increase cover if the policies have been cut back.

If a customer has cancelled a policy, they will be offered the chance to reinstate their cover.

The rest of the year will see a freeze in PPI costs for existing customers.

It will also be made clearer where PPI premiums can vary.

Adam Phillips, chairman of the Financial Services Consumer Panel, said: "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.

"Significant changes to cover go against the whole principle of why people pay for insurance and undermine consumers' trust in the industry."

He went on to applaud the FSA for taking action but warned he would be watching what premiums are going once the freeze in costs is lifted.

Lucy Widenka, Which? personal finance campaigner, added firms had been "effectively been selling people umbrellas then trying to take them away at the first sign of rain".

She called on companies to refund customers as quickly as possible and demanded firms that have been increase premiums be named.

"The fact remains that MPPI is not a great product - just 28 per cent 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," she said.

• Tags:
• mortgage insurance
,
• news