MPPI firms to refund £60m

The industry has acted in response to FSA concerns over increases in premiums and reductions in what customers are covered for under their policy.

The regulator's concerns centred on the terms permitting these changes and how clearly they were disclosed. It expects the concerns to be addressed by the agreement reached.

Under the agreement, MPPI firms will proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy this year.

Firms will also offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during this year and will freeze premiums and cover for existing customers for at least the remainder of this year.

MPPI contracts will also be amended 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 for the FSA, said: "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 it will watch to see how the FSA ensures MPPI customers continue to get a fair deal beyond this date.

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

Lucy Widenka, personal finance compaigner for Which?, said the FSA has taken action against firms who had effectively been selling people umbrellas then trying to take them away at the first sign of rain.

She said: "The fact remains that MPPI is not a great product - just 28 per cent of premiums collected are paid out in claims."

Stephen Smith, an IFA for County Durham-based Davison Smith Financial Management said: "I do not agree with the way that MPPI was set up as additional loans and where people do not understand the terms they should be reimbursed.

"If £60m is enough only the insurers will know, but it is a step in the right direction."