Insurance companies have said that they are being forced to increase the cost of cover for working homeowners because of the steep rise in claims from homeowners who have been made redundant as a result of the recession.

March saw unemployment levels reach their highest in twelve years, with two million people claiming Job Seeker’s Allowance. According to the Association of British Insurers there has been an incredible 200 percent increase in mortgage insurance claims recently. In December of 2007 there were 6,611 claims made. However, in December of 2008 this shot up to 20.063. In total there are over two million Mortgage Payment Protection Insurance in force.

A number of insurance providers have already announced their hikes, and so far the level of the increase has reached 40 percent. It is thought that all MPPI providers will now have to increase the cost of cover to cope with the financial losses resulting from the rising number of claims from those being made redundant, and this will mean added costs for homeowners that are already struggling to make ends meet.

One insurance broker said: ‘There is no concept of loyalty with some of these companies and no recognition of the money you’ve already paid in. I can understand why premiums should go up for new customers, but someone who’s been paying in for years should not be penalised and treated the same as a new customer that has come off the street.’

Mortgage insurance customers could face 40 percent increases is a post from: Glitec

Once the ban on the sale of the cover has been put into place lenders will no longer be able to sell this cover alongside credit agreements. The Competition Commission has also reduced the amount of time that lenders must wait before contacting customers to see if they want the cover, from fourteen days to seven days.

As part of the rules consumers will be able to contact the lenders themselves within twenty four hours if they wish to take out the cover, which is designed to cover repayments on a debt for a specified period in the event that the borrower cannot make repayments due to sickness, injury, or redundancy. Single premium PPI sales will also be banned under the rules, and this is where the cost of the cover is taken as a lump sum and added to the loan, which means that the borrower has to pay interest on it.

However, the Association of British Insurers has expressed concern that the ban on PPI could cause problems for many borrowers, particularly given the current economic and financial climate, where many were concerned about losing their jobs. PPI has been under fire for some years after investigations revealed that it was being mis-sold in a number of ways, and often consumers were being forced into taking the cover or having it added to their credit without even being told.

One official from the Competition Commission said that the measures had been put into place to protect consumers. He said: ‘Consumers’ interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product. The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect.’

PPI with loans to be banned is a post from: Glitec