Employees see mortgage cover pulled

Published in the Financial Times 27 March 2009

by Josephine Cumbo

A large insurer has been accused of “outrageous” behaviour after cancelling mortgage insurance policies held by at least 70 customers as unemployment rises.

Hitachi Capital Insurance, part of the Hitachi Capital group, recently wrote to customers who bought policies through 16 independent financial advisers (IFAs) informing them that their cover was not being renewed.

“We decided to take this action as the loss ratio on business introduced from IFAs was abnormally high – four to five times higher than we would normally expect and (this) would be unsustainable for any insurance company in the long term,” said Steven Lawler, managing director of Hitachi Capital Insurance.

“To continue to expose our company to these kind of losses would be foolish.”

Hitachi did not provide an exact number of policies cancelled, but says it was “less than 150” and a very small percentage of its 11,000 mortgage payment protection insurance (MPPI) policyholders. But its actions came as more workers are finding it difficult to buy insurance to help with loan repayments if they lose their jobs or become too ill too work.

With the jobless level climbing to a record 12-year high, insurers have imposed double-digit premium increases or tightened criteria for certain professions, such as financial services and IT.

Some of Hitachi’s former customers are now challenging its decision with the Financial Ombudsman Service, having found it difficult to obtain new cover. But Lawler denies the company’s actions were unfair. “We are perfectly entitled to cancel policies,” he said.

“When cancelling policies, we are very mindful of customers’ best interests. We only cancelled at the 12-month anniversary date of the policy and have given customers 60 to 90 days’ notice of our intention to cancel.”

“We have not cancelled policies for customers in claim or where the customer can provide proof that a claim is imminent.”

Hitachi no longer sells through IFAs and has begun to pull out of the mortgage broker market, saying it has seen a “large number of policies being bought by customers who already know they are going to be made redundant”.

Asked if customers who bought a Hitachi policy through a mortgage broker – its principal distribution channel – could also be at risk of having their policies cancelled, Lawler said: “We are still reviewing this option although it is likely in the short term we will increase premiums to give us the returns we require from this market.”

The company’s actions angered consumer groups. “This is outrageous,” said Teresa Fritz, a senior policy adviser with Which? “They can cancel contracts legally but, morally, they should not be doing this. These customers have paid premiums but as soon as customers need them, they go running for the hills.”

Bob Cook, of Best Income Protection an IFA who had cover for at least 70 of his customers cancelled said: “You just don’t ditch your old customers like this. Some of these customers will now find it impossible to get cover as the market has tightened and premiums have increased.”

‘I thought I had safety net’

A 36-year old Bournemouth man is challenging Hitachi’s decision last year to cancel his MPPI cover. He had paid premiums of £25 per month for nearly 2two years when Hitachi notified him that it wasn’t renewing his policy.

The notice came as the software development manager had just been givenadvised his job was at risk of redundancy. He could not make a claim at that stage as he had not actually been made redundant. Hitachi cancelled his policy two months later. He did not obtain alternative cover and is meeting his £900 per month mortgage repayments from his redundancy payout.

“I paid my premiums for two years and thought I had a safety net,” he said.

. Why are they in the insurance business if they are not going to honour their contracts?

Copyright The Financial Times Limited 2011.