Forum Brief: Endowment mortgages

A committee of MPs has condemned the insurance industry for selling  underperforming endowment mortgages.

In a report published on Thursday, the Treasury select committee said more than five million people now face average shortfalls of £5,500.

Party Response: Liberal Democrats

Norman Lamb MP, Liberal Democrat member of the Treasury Select Committee, said: "Companies accept there has been some mis-selling of policies, but what they have failed to do is clearly inform policyholders that they have a right to complain.

"What customers now need is access to clear and practical advice to try and make up their shortfalls."

Forum Response: Association of British Insurers

Mary Francis, the ABI’s director general, said: “Changes in the economy have led to reduced investment returns for endowment mortgages, as for many other kinds of savings.

“The industry has made clear its regret that customer communications and sales practices in the past were not better. But it is disappointing that the select committee’s report does not recognise the extensive changes that have taken place in the industry and regulation, and does not focus on how to boost savings in the future.

“Customers with potential shortfalls need clear and timely information so that they can take appropriate action now.  The further measures we are announcing today will help ensure that customers receive the best possible information and advice.”

“Holders of endowment mortgages are now paying much lower interest charges on their endowment package – in many cases these savings more than cover what needs to be put aside to make up the investment shortfall. The select committee is right to point out the importance of taking action to make up for shortfalls. But it should also recognise the substantial interest savings that have been, and will continue, to be made.

“The FSA has recently re-confirmed that the existence of a potential shortfall is not itself grounds for a complaint. Millions of letters from companies, backed up by widespread and repeated publicity, have ensured that customers are aware of their rights and how to complain if they wish to do so. If customers feel they were given misleading advice about their policy, and have lost out as a result, they can and should complain. Independent research for the FSA shows that customers understand and appreciate this point.

“Today’s report is the precursor to a broader inquiry into boosting confidence in the long-term savings industry. The industry is looking forward to working with the committee on this more forward-looking inquiry.”

Forum Response: Consumers' Association

Louise Hanson, head of campaigns at the Consumers’ Association, said: “At last we have public recognition that nothing short of radical solutions will clean up the financial services industry and restore consumer trust.

 

“Today’s report will be welcome news to the five million mis-sold endowment policyholders who have suffered at the hands of an apathetic industry.  We hope that this will force the regulator and the industry to acknowledge the extent of mis-selling and take proper action to help those affected.

 

“For too long the industry has been allowed to put consumer needs at the back of the queue.  The committee’s call for a cultural shift to force the industry to sell products which cater for their customers’ needs rather than their own is long overdue.”

 

“We are particularly pleased to see the Treasury select committee recommending a system to deliver low cost advice that consumers will trust. We believe that this is an essential step to restoring consumer faith in financial services.

 

“We hope that the industry will adhere to the committee’s demands to introduce colour coding into their reprojection letters.  At the moment it is very difficult for consumers to establish how their policies are performing.

 

“We are disappointed that the committee will not be requiring companies to include information about mis-selling in the body of the reprojection letter.  CA research showed that only 13 per cent of endowment holders who had received reprojection letters knew that the fact sheet on complaining even existed.”

 

Forum Response: Financial Ombudsman Service

 

Emma Parker, spokesperson for the Financial Ombudsman Service told ePolitix.com: "The mortgage endowment problem has been known about for some time, the media, Consumer's Association and firms (by the reprojection letters) have publicised the matter. The Financial Ombudsman Service will have received 50,000 complaints by the end of March 2004 and had consulted on a forecast for the year ahead that we would receive 35,000 complaints. However, early indictions from industry lead us to believe that we might receive the same level of complaints as this financial year (50,000)."