Up to 116,000 borrowers could suffer under the Financial Services Authority’s (FSA) proposals to label critical illness (CI) cover as ‘higher risk’, according to Legal & General (L&G).
It has estimated this as the number of homeowners annually, who will suffer a critical illness during their mortgage term, but will not have any protection in place, if the proposals contained in CP160 and CP174 are carried out. The consultation papers propose treating some products, such as CI, as higher risk and making them more onerous for advisers to sell.
At the moment the ABI estimates that annual sales of CI have increased to £1.2m, and around 60% are to cover mortgages. But L&G claimed brokers would not promote it as a source of mortgage protection if it is made harder to sell.
Graham Newitt, protection and housing director at L&G, said: ‘The consequence of the FSA’s proposals will be that many advisers will not want to take on the additional costs and burdens of heavier regulation to recommend an add-on product which they are under no obligation to offer. ‘
However, Charles Ansdell, corporate relations manager at Inter Alliance, said advisers would have to sell it whatever the restrictions. He said: ‘Given that income protection insurance will not cover everything, advisers will always have to recommend CI where it is appropriate.’