47,000 endowment policies face shortfalls

MORE THAN 47,000 holders of endowment policies will face an average shortfall of €3,810 each, according to a survey by the Financial Regulator.

The Financial Services Ombudsman, Joe Meade, warned such customers yesterday they are unlikely to succeed in seeking compensation from financial institutions for mis-selling the product or for the failure of the policy to reach its projected maturity value.

However, he said policy holders could have some redress if financial institutions had failed to provide them with regular statements on the performance of their policy as they were legally obliged since 1995.

He told the Joint Oireachtas Committee on Finance and the Public Service that the ombudsman has dealt with 280 complaints relating to endowment mortgages.

However, all complaints lodged on the basis of alleged mis-selling had failed. Mr Meade said only two complaints in relation to endowment mortgages had been upheld. He revealed sums of €2,500 and €2,000 were awarded on the basis of mal-administration to these complainants. Another 19 cases were settled by ex-gratia payments to the customer.

He said relevant financial institutions had failed to provide their customers with statements on the performance of their policy.

Under the Consumer Credit Act, 1995, insurance companies must issue policy holders with a statement every five years including information on the policy's projected maturity value. Under the Life Regulations 2001 legislation, they must provide an annual statement with the same information for policies issued after that date.

All endowment mortgage customers will receive an annual statement from next April under a new agreement between the Irish Insurance Federation and the Financial Regulator.

The survey by the Financial Regulator also revealed 23,264 people still have endowment mortgages which have not yet matured.

The regulator's chief executive Liam O'Reilly said it was estimated the projected overall shortfall of such policies over the next 15 years will be around €89 million. It represents an average shortfall of €3,825 per endowment mortgage.

Mortgage lenders have estimated €1.2 billion is still owed by outstanding endowment policy holders. This amounts to just under 1.5% of the €82.2bn lent by Irish financial institutions for residential mortgages.

Another 24,495 endowment policy holders have repaid their mortgage but still retain the policy for saving purposes.

Mr Meade said there was a six-year limit on the cases which he could investigate. He also stressed he did not want to raise false hopes among customers hoping to obtain compensation for shortfalls in their policies.

Fine Gael finance spokesman Richard Bruton said he was disturbed at the catch-22 situation in which many endowment policy holders found themselves as most policies were sold prior to 1992.

Endowment mortgages accounted for over one-third of all mortgages approved between 1989 and 1992. Their popularity has dropped since and they accounted for just 3.4% of mortgages sold in 2003.

Meanwhile, both the Financial Regulator and Financial Services Ombudsman have expressed concern about the potential mis-selling of some of the new equity release products recently introduced to the Irish market, particularly to vulnerable, elderly people.

Mr O'Reilly said the sale of "home reversion" products, where a consumer sells part of their home in return for cash, was not regulated by any of the State's financial authorities.