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Watchdog&#39s view is critical

The Financial Services Ombudsman is reckoned to be looking warily at the trend towards reviewable premiums on critical-illness policies, with some product providers saying that the watchdog has indicated that such contracts may fall foul of unfair contract principles.

It has indicated its concerns that policyholders may not understand the premiums they are being quoted at time of purchase are only valid for the first five years or however long the initial term lasts.

This is a worrying development as the market is tilting heavily towards reviewable premiums.

Advisers are already impatient with the pace of development of the next generation of products following the sharp increases in price or withdrawal of many non-reviewable CI policies.

The ombudsman&#39s concerns could be another spanner in the works and lead to more delays.

Of course, the ombudsman is correct to warn about future problems in the run-up to regulation. It is also important that providers do not design what could be construed as unfair contracts.

Given that many product providers view guaranteed premiums as simply too expensive to continue offering, the fact that their main alternative is being viewed negatively by the FOS must be cause for concern. But it is difficult to see an alternative product that providers can afford and that meets the public&#39s need for cover.

The answer surely must be to make sure the terms of such contracts are crystal clear at the outset.

The ombudsman may be hoping to nudge the market away from practices it believes fall foul of its rules. But there is an urgent need for an open debate and for providers to give a lead so the needs of the public can be met.

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