Endowment bombshell

By SEAN POULTER, CONSUMER AFFAIRS EDITOR
Updated:

 

THE endowment mortgage scandal is claiming millions more victims than anyone realised.

Insurance industry sources claim the proportion of endowment policies which will not cover loans has rocketed from 46% to 75% in just three years.

Excessive charges imposed by the insurance giants combined with stock market turmoil have left seven million policies heading for a shortfall - estimated to total £21bn. A quarter of the endowments maturing this year are failing to deliver the target sum.

The average shortfall is estimated at £3,000, but experts say that figure could also spiral.

The reality for victims is that they may not have enough money to pay off their home loan, threatening poverty in old age or even homelessness.

The director of the Consumers' Association Dame Sheila McKechnie called the situation 'an outrage'. She said: 'Insurance companies creamed off huge commissions and charges in the past, but they are now trying to blame problems on the stock market for the failure of these schemes. There was a culture of greed throughout the industry.

'People right at the top were driving the sale of endowment policies on the back of bogus promises that they would pay off home loans and provide a tax-free lump sum.' The Financial Services Authority, which is supposed to police the firms responsible for the fiasco, has been condemned as an abject failure.

The watchdog has in effect left it up to the industry to decide whether and how victims should be compensated.

At the same time, the Association of British Insurers appears to be colluding with its members to cover up the true scale of the crisis.

Its officials refused to provide data it holds on the number of warning letters sent out to victims over the last six months.

Dame Sheila said: 'Time and again we have run up against a culture of secrecy within the industry, which appears determined to cover up the full scale of this crisis. It fails to publish details on how many policies are in shortfall, claiming commercial confidentiality.

'At the same time, the Financial Services Authority has totally abdicated its responsibility. It has effectively told the industry to clean up the mess it has created.

'Individual consumers are being left to pursue recompense themselves, and we believe a large number of legitimate claims are being rejected by insurers. 'Even where compensation is awarded it is coming out of the pockets

of other policyholders, rather than the profit and loss accounts of these companies.' Complaints to the Financial Services Ombudsman are expected to hit a record 50,000 this year - more than twice as many as it anticipated

as recently as this spring. And Chief Ombudsman Walter Merricks admitted: 'This is the tip of the iceberg.'

The reason is a surge in warning letters sent out in the last few months. So-called 'red' warning letters have been sent out on four million policies, indicating that these will almost certainly-face a shortfall. Another three million are 'amber' letters indicating a possible shortfall.

The suspect policies cover five million householders, because some have more than one.

The head of Life and Pensions at the ABI, Alan Woods, defended the organisation's refusal to provide figures.

He said: 'The industry is committed to providing customers with information that is relevant to them individually so that they know what is happening with their policy.'

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