Record fine may open floodgates

This week's record £1m fine imposed on insurer Abbey Life for mis-selling endowment mortgages could open the floodgates to a tide of claims against other companies from homeowners who believe they were wrongly sold their policies.

Abbey Life, part of the Lloyds TSB empire, was found guilty of making "widespread unsuitable recommendations" relating to endowment policies linked to mortgages.

However, the £1m fine imposed by City watchdog the financial services authority is a drop in the ocean compared with the £120m-£160m the company will have to fork out in compensation to up to 46,000 endowment mis-selling victims.

The FSA's tough action thrust the endowment scandal firmly back in the spotlight and will have undoubtedly prompted policyholders with Abbey Life and other companies who feel they have lost out to consider complaining.

Abbey Life isn't the only offender that's going to be punished - the FSA says "other cases are in the pipeline".

The watchdog also revealed that so far more than 300,000 people have either received or are in line for compensation for endowment mis-selling or other problems with policies. It disclosed that 20 companies have agreed to proactively compensate around 266,000 policyholders who have lost out.

Intriguingly, the companies are also coughing up cash to a further 42,000 people who have simply written in complaining they are victims of mis-selling. In all, the 20 companies have set aside close to £600m for compensation - a figure sure to rise.

Only three of the 20 have been named: Abbey Life, Winterthur Life and Royal Scottish Assurance. However, others are likely to include United Friendly Insurance and Refuge Assurance (both in the Royal London group).

At least now Abbey Life is acting honourably - where there is any doubt about whether a customer may have been mis-sold their endowment, the company "has resolved this in favour of the customer," says the FSA.

The company adds that its customers don't need to take any action. It says it has already written to the vast majority of those potentially affected and the remaining few letters will be sent out shortly. The typical payout will be £1,500 to £3,500.

If you're an Abbey Life customer, you feel you were mis-sold and you haven't heard anything, contact the company.

The same goes for aggrieved policyholders with other companies because the problems at Abbey Life are just the tip of the iceberg according to the Consumers' Association - it claims up to 5m endowment-holders could have been mis-sold.

The CA says its research suggests millions were sold the policies without being warned of the risks, and were led to believe the products were guaranteed to pay off their mortgages.

· Shortfall is a double blow

Jeff and Lorraine Morgan have two endowment policies with Abbey Life and are among those who believe they may have been victims of mis-selling.

The larger of the two policies was taken out in 1991 and the couple are relying on it to pay off their mortgage. The policy's target amount is £46,000 but the company has warned them it is likely to fall way short.

The Morgans face a potential shortfall of £12,000 even if the endowment - which they are paying £160 a month into - delivers future investment growth of 8% a year. If it only grows by 4% a year it will fall short by £22,000.

The smaller policy was taken out in 1988. The target sum is £20,000 but again it looks likely to fall short by several thousand pounds.

Father-of-two Mr Morgan, 47, a freelance photojournalist, says that when they took out the bigger policy they were told that apart from paying off the mortgage, it would also give them a healthy tax-free lump sum.

"We haven't heard anything about compensation. If we don't hear anything within three or four weeks we will contact them," says Mr Morgan, of Newport, south Wales.

· Claiming if you think you were mis-sold

So, what do you do if you think you may have been mis-sold your endowment?

The first thing to say is that poor investment performance and warnings of a big potential shortfall are not enough in themselves to gain compensation.

You have to show you were given duff advice - for example, you were told the policy "is guaranteed" to pay off the mortgage. Clearly, your case will be much stronger if you've got documentation from the company which backs up your claim.

The first thing to do is write to the firm or adviser that sold you the endowment policy. Put the facts in a logical order, with the policy number at the top. You are likely to get a form back from the company asking for lots of details about the policy and your circumstances.

The Consumers' Association has a website - www.endowmentaction.co.uk - which explains who should complain about home loan endowments and how to go about it, and includes a facility to help people write a letter of complaint.

The CA says you could have grounds for complaint if:

You weren't warned of the risks associated with investing in the stock market;

You were promised the policy would pay out more than the mortgage amount;

You weren't told about other options for mortgage repayment;

The adviser "churned" the policy (persuading you to cancel one policy and then take out a new one);

The policy finishes after you retire.

However, the financial services authority (helpline: 0845 606 1234; its website www.fsa.gov.uk contains useful information) says that to be eligible for compensation you have to show you received unsuitable advice AND you've lost out financially as a result.

If your complaint is rejected by the firm, ask for a "deadlock" letter and take your case to the Financial Ombudsman Service (www.financial-ombudsman.org.uk, address: South Quay Plaza, 183 Marsh Wall, London E14 9SR, tel: 020 7964 1000).