Members of the Association of British Insurers have agreed a ten point action plan to respond to the current uncertainty surrounding past and current sales of mortgage endowments.

Mary Francis, Director General of the ABI, commented:

“Endowment mortgages have for many years performed exceptionally well for millions of homeowners; but we have all recognised that changes in tax benefits, low inflation and expected investment returns are making some endowments less attractive. Already, far fewer are being sold. The industry is taking these new measures to ensure that where new endowment mortgages are sold, they are the best option for the borrower. Our members will also ensure that existing policyholders are clearly and regularly informed about the performance of their policies.”

The ABI welcomed the FSA’s statement today that “on average, consumers have done well from having an endowment.”

Mary Francis added:

“Our new measures demonstrate that the insurance industry is taking the initiative to respond to people’s concerns and ensure that they are fully informed. We, like the FSA, are particularly determined to ensure that people do not lose money by cancelling policies early without proper advice.”

ABI’s ten point action plan on new and existing sales of endowment policies is:

New Sales

The principles for good advice on future sales of endowment mortgages which were recently proposed by the Institute and Faculty of Actuaries will be adopted by the industry. In particular:

1. An endowment mortgage must be demonstrably better than a repayment mortgage, taking account of all the economic circumstances known at the time.
   
   
2. The customer’s personal financial circumstances will be fully considered when alternative types of mortgage are evaluated.
   
   
3. If a customer requires life insurance, critical illness cover or “waiver of premium benefit” protection, the value of these benefits will be taken into account in evaluating alternative mortgage types.
   
   
4. The customer’s attitude to risk will be fully considered so that people seeking a higher or lower risk/reward ratio will be appropriately advised.
   
   
5. The FSA mid-rate growth assumption for endowment funds (currently 6%) will normally be used to determine the premium required to be confident that there is sufficient money to repay the mortgage when it falls due. If a higher rate within the FSA range is chosen, this will be specifically disclosed and explained to the customer.
   
   
6. Members’ sales practices and record keeping will fully meet the requirements of the regulator as set out in the latest regulatory update.

Existing Sales

7. During January, insurers will write to all mortgage endowment policyholders with general information about their mortgage endowment policies in general and details of the timing for individual updates.
   
   
8. Policyholders will be sent the FSA fact sheet (“endowment mortgages – what to do if you are worried”) with their letter.
   
   
9. As a matter of urgency ABI will work with the FSA to develop a standard set of wordings and list of information to be used when sending customers re-projections of the expected investment performance of their policies. Mailings will begin in the Spring.
   
   
10. Insurance companies will ensure that their customer helplines are ready to deal with general enquiries or complaints about endowment mortgages, letters to customers and questions about past advice given by them.

Notes

1. An endowment mortgage must be demonstrably better than a repayment mortgage, taking account of all the economic circumstances known at the time.
   
   
2. The customer’s personal financial circumstances will be fully considered when alternative types of mortgage are evaluated.
   
   
3. If a customer requires life insurance, critical illness cover or “waiver of premium benefit” protection, the value of these benefits will be taken into account in evaluating alternative mortgage types.
   
   
4. The customer’s attitude to risk will be fully considered so that people seeking a higher or lower risk/reward ratio will be appropriately advised.
   
   
5. The FSA mid-rate growth assumption for endowment funds (currently 6%) will normally be used to determine the premium required to be confident that there is sufficient money to repay the mortgage when it falls due. If a higher rate within the FSA range is chosen, this will be specifically disclosed and explained to the customer.
   
   
6. Members’ sales practices and record keeping will fully meet the requirements of the regulator as set out in the latest regulatory update.