The announcement comes after the FSA raised concerns over increases in premiums and reductions in what customers are covered for under their policy.
The regulator’s concerns focused on the terms permitting these changes and how clearly they were disclosed. It says it expects these concerns to be addressed by the today’s agreement.
Under the deal, MPPI firms have agreed to proactively refund increases in premiums and reverse any reductions in cover for customers who have experienced these changes to their policy in 2009.
Providers will offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during 2009 and freeze premiums and cover for existing customers for at least the remainder of the year.
They have also agreed to amend MPPI contracts to ensure all customers are made aware of the circumstances in which firms have the right to vary premiums and cover.
FSA managing director of supervision Jon Pain says: “The FSA welcomes this positive move by MPPI firms to reverse recent changes in premiums or cover which will put affected customers back in the position they were in before the policy was changed.
“It will also give all MPPI customers clarity about when and why firms will be able to vary these in future. This clarity will provide the basis for MPPI to remain a valuable option for many mortgage customers who wish to take out protection, alongside the mortgage commitment they are taking on.”
Firms will contact customers if their policy is affected and will make all refunds by the end of June 2010.
The Financial Services Consumer Panel welcomed the announcement.
Chairman Adam Phillips says: “This is exactly what a financial regulator should be here for and we applaud the FSA’s action.
“We note that this agreement is to freeze premiums and cover for existing customers until at least January 2010. We will be watching to see how the FSA ensures MPPI customers continue to get a fair deal beyond this date.”