Publised in the Financial Times 26 March 2010
by Josephine Cumbo
People who have bought insurance to protect their mortgage payments if they lose their job or are unable to work are facing steep rises in the cost of their cover.
Since January, a number of leading providers of mortgage payment protection insurance (MPPI), including Cardif Pinnacle, Assurant and Paymentshield have increased monthly premiums for customers – in some cases by more than 70 per cent.
MPPI is also known as accident, sickness and unemployment (ASU) insurance. It is a cheaper type of income protection that pays out for shorter periods of time – typically one to two years.
Cardif Pinnacle said that the price rise was a direct result of more people making claims on their insurance in 2009, as the recession hit and more people found themselves out of work.
Assurant has also raised its premiums for some customers, citing “exceptional” volumes of claims over the past 24 months. One policyholder, a former company director, complained to Assurant after his premiums rose from £82.50 to £143 per month – a 74 per cent increase.
This wave of increases comes just six months after the Financial Services Authority (FSA) intervened last year to force insurers to rebate millions of customers who had faced premiuim increases on their payment protection insurance policies in 2009.
The FSA was concerned that insurers had not been clear or fair enough about their right to increase premiums. Insurers were required to tighten their policy paperwork and small print before notifying customers of any further rate changes.
Consumer group Which? says that while consumers are receiving refunds, the regulator “must come down hard on any who continue to put the squeeze on their policyholders by hiking premiums.”
But the FSA has since clarified that the “onus was on the business to decide what is fair”.
“We are not specific about what is fair in terms of a change to premium but if a firm said they were getting increased claims that would be a valid reason for increasing premiums,” says an FSA spokesman. “If customers are not happy with the premium increase and think it unfair, they can cancel the policy.”
The Association of British Insurers (ABI) agrees with the FSA that insurers need to be able to show that any premium increases are “proportionate” to any increase in their claims costs. But policyholders who are unhappy with premium increases that have come into effect this year are advised not to cancel a policy too quickly, as they may find it hard to buy new like-for-like cover.
Some insurers have tightened terms recently, by increasing qualifying periods – the amount of time a person has to be off work before they can make a claim – from 30 to 60 days. Individuals whose health has worsened will also find it harder to obtain equivalent cover, as will those working in sectors that pose a greater risk of redundancy.
“In my view people working for Cadbury’s, airlines, the construction industry and financial services sector should stick with their existing policy,” says Bob Cook, of Best Income Protection (a trading style of Platinum Financial Consulting), the independent financial advisers.
“Better quality products may emerge at a more reasonable premium later in the year. If that coincides with the start of a recovery in the job market, that may be a much better time to review your options.”
Insurers have until the end of June to refund premium increases made in 2009.
Clare Mullen, an air stewardess from Glasgow, was angered when her insurer, Assurant, tried to raise the premiums for her MPPI policy by 82 per cent last year – and thinks that any future rises would be “grossly unfair”.
The 51-year-old was paying £41 a month to cover £1,100 a month but was notified that her premiums were about to rise to £75 per month. “I couldn’t afford the increase, but I couldn’t afford not to have a safety net either,” she says. “So I reduced my cover to £650 a month but the premium still rose to £44.
“My insurer has not reinstated my cover to where I was before the premium rise, in spite of the FSA’s intervention, so I am paying more, but for half the cover – which isn’t fair or adequate,” she adds.
Ms Mullen says that any further increase would force her to give up her insurance. “I would find it hard to get a new policy because I am in a high risk sector, both for redundancy and accidents,” she explains. “I don’t think that it is fair of insurers to penalise existing customers like this, especially ones who have paid over many years in good faith.”
Copyright The Financial Times Limited 2011.