FSA in mis-selling payback probe

LIFE insurance company Guardian is facing an inquiry from the Financial Services Authority after it short-changed 900 savers by up to £4.5m in compensation for mis-sold endowments.

For 11 months from April 2003 to the start of March 2004, the insurer used the wrong formula to calculate compensation.

In one case seen by the Financial Mail on Sunday, the error in calculation led to the insurer paying almost £5,000 too little compensation.

If this was an average claim, it suggests that Guardian has underpaid customers by up to £4.5m.

The insurer was trying to cap its liability for mis-selling by calculating compensation from the date a policyholder was first sent a 'red warning' letter. But the Ombudsman has told the insurer to pay compensation up to the date a claim is settled.

A spokesman for Guardian, now part of the Dutch financial group Aegon, said: 'The company believes its procedure is in keeping with guidelines. If policyholders come back with queries, each case will be reviewed separately.'