Probe exposes insurance 'mis-selling'

A YEAR-LONG investigation has uncovered evidence that homebuyers are being sold insurance they do not need.

Researchers from consumer magazine Which? posing as first-time homebuyers visited banks, building societies and estate agents to test the advice given on protection policies sold with mortgages.

Just one out of 39 advisers gave 'acceptable' advice, asking enough questions and making the right recommendation, according to the magazine, which is part of the Consumers‘ Association.

Researchers were also recommended life insurance 23 times when they already had enough cover and only three of the 25 who recommended critical illness insurance explained what was and wasn't covered.

Advisers often earn commissions for selling insurance including critical illness and income protection to homebuyers. But Which? says the policies are expensive and complicated.

It claimed that some advisers even resorted to cynical shock tactics to sell policies. It said an adviser from Halifax Estate Agents told one undercover researcher his cousin had just developed breast cancer. A Your Move adviser said he was attending a funeral later that day for a 42 year old who had died of leukaemia.

A spokeswoman for Halifax Estate Agents said the company regarded critical illness cover as valuable product for consumers. She added: 'All of our advisers are fully trained before they sell critical illness cover. We‘re confident our guidelines are being followed.'

Halifax also said Which? had declined to pass on details of their investigation, making it impossible to follow up specific allegations.

Your Move pointed to a study published last month by the Office of the Deputy Prime Minister which found that 40% of homebuyers have no insurance cover. The company said it tried to 'identify suitable and adequate protection for the customer's mortgage, within the customer's budget'.

Malcolm Coles, Which? editor, said: 'Our investigation exposes serious problems with the way advisers work. It's appalling to use scare tactics that could dupe people into spending hundreds of pounds each year on cover they don't need.'

Mortgage-related insurance will be brought under the regulatory control of the Financial Services Authority from January.

However, Which? believes the policies should not be lumped together with simpler car and house insurance. Coles said: 'We're glad a tightening up of selling practices is on the horizon, but we're not convinced it'll be enough. We think the FSA needs to do its own mystery shopping, and fine any company that breaks the rules.'