Insurers in bid to defuse anger over endowments

The Association of British Insurers is to try to calm the furore over endowment mortgages by drawing up a new code of practice.

According to some estimates, up to 6m of the 10m mortgage endowments held by UK homeowners are not on target to pay off the mortgages they cover. Most endowment holders will have to make up the difference, which may run to tens of thousands of pounds.

The ABI's code, which takes effect from July and will be followed by all ABI members, is designed to make sure policyholders are kept up to speed on how their endowment is performing so that they can take action.

The Financial Ombudsman Service now fields up to 400,000 calls a year from people who believe they were mis-sold an endowment. It handled 9,300 complaints in the year to March 2001, more than three times the previous year's total. It expects the complaints to peak next year at 13,000 cases.

The problem arose because endowments' performance is forecast assuming future interest rates - which may change. 'We want to let people know the endowments may not perform in plenty of time,' says an ABI official.

The code was inspired by the reprojection letters sent to consumers in the past year since the Financial Services Authority and the ABI first realised there was a problem. The letters are colour-coded red, amber and green according to the severity of the shortfall risk.