GRE pressed to offer more compensation

THE insurance ombudsman is urging Guardian Royal Exchange to offer substantially better compensation to up to 500, mainly elderly, investors who suffered when they took out home income plans with the insurer.

The settlements GRE made with the clients of InterCity Associates, a former tied agent, were much less generous than they might have expected to receive from the ombudsman. GRE's offers took no account of mortgage interest costs, associated legal fees or the distress caused.

Peter Tyldesley, an assistant to the ombudsman, said: 'The offer was in our view inadequate and failed to advise policyholders of their right to come to the (Insurance Ombudsman) Bureau.'

Mr Tyldesley believes elderly and vulnerable policyholders were given insufficient time to consider GRE's offer. The insurer also sought to bind investors from pursuing claims against their mortgage lender, which made it 'certain that policyholders would be under-compensated'.

GRE has already been much criticised for its handling of compensation claims by investors who dealt with Centrust, another of its former tied agents.

Julian Farrand, the ombudsman, is willing to reopen the InterCity cases to allow policyholders to claim fuller compensation. However, GRE has yet to agree to offer improved terms to all policyholders, the line taken by another life insurer in a similar position. This means InterCity clients could lose out unless they contact the ombudsman.

Dr Farrand is not guaranteeing further compensation and is unlikely to make such an award if an investor accepted the GRE offer on the basis of professional advice. However, Mr Tyldesley added: 'It's clearly worth their while . . . contacting us.'

GRE's Keith Lugton said the insurer had been in touch with the IOB when it made its original offers but the ombudsman's thinking had evolved further. He said many of the 400 clients who opted for compensation had been legally advised.

A home income plan typically involves an investor re-mortgaging his home and investing the money released in an insurance bond. In the late 1980s, insurance salesmen presented the schemes as a way of boosting the income of elderly people whose capital was tied up in their home. But the slump in housing prices and poor investment returns have left many investors facing financial difficulties.

Mr Tyldesley said it was a depressing experience interviewing the elderly investors who have suffered through the GRE schemes. 'They are people who have been under tremendous strain for two or three years, who often have no assets other than their home and are at risk of losing that. The sort of misery that these things have caused is hard to express. It's absolutely vital that insurers with these cases deal with them promptly and fairly.'

GRE has paid out pounds 7m to 400 InterCity investors, though most of this came from the cancellation of the investment bonds.

Richard Barnett of Barnett Sampson, a London firm of solicitors dealing with many home income cases, said: 'GRE have unfortunately behaved very disappointingly. A tied agent sells an appalling scheme in conjunction with Newcastle Building Society. They have tried to divorce the investment side of the plan from the mortgage and have made offers to take care of the investment loss.

'It is not only simplistic, it runs directly contrary to what both Lautro and the IOB have quite clearly stated has to be done.'