Can MPPI insurers cancel my policy?

The background

Since the start of the financial crisis mortgage payment protection insurers have suffered significant damage to their operating profits as a result of the large numbers of redundancies made. In reaction to this many MPPI insurers have resorted to cancelling policies or raising premiums in order to maintain profitability, which has led to a large number of complaints with the Financial Services Authority (FSA). A new agreement between the FSA and insurance providers has, hopefully, led to a resolution to this problem.

Insurers cancelling MPPI policies

Mortgage payment protection insurance (MPPI) covers the policyholder from the risk of missing home loan payments due to accident, sickness or unemployment. Due to the terms and conditions written into many of these plans insurers were able to cancel policies as profitability fell due to rising unemployment.

Many consumers felt, quite rightly, that the insurers were able to cancel their policy at a time when they were likely to need it most, even though they had been paying their monthly premiums for some time. The truth is that many insurers felt as though they had no choice because the number of claims being registered made the risk of bankruptcy very real. Insurers underwriting models were not equiped to handle the unexpected rise in redundancies as a result of the recession and cancelling policies was as way to curb their losses (along with raising premiums).

The situation now

Under the new FSA agreement insurers have committed to offering refunds for those individuals who had their policies cancelled or they have the option for the plan to be reinstated on their original terms.

All policies now taken out have to follow the new FSA agreement. Insurers must now state their cancellation rights very clearly in their terms and conditions. In line with the FSA’s principle of treating customers fairly (TCF) insurers have agreed to limit their cancellation rights. Although the exact details will vary from insurer to insurer, MPPI providers have the right to cancel the policy after 12 months of cover and with 90 days written warning. If any changes are made to the premiums or policy terms the 12 month period of cover will usually start again.

These new measured should put some confidence back in the market that insurers cannot just cancel plans at will when the market turns against them. Drewberry Mortgage Insurance feel that a period of 90 days provides a reasonable window of opportunity to switch providers should a policy be deemed for cancellation. In this light we welcome the FSA’s action on this matter.