The FSA and Mortgage Payment Protection Insurance (MPPI) firms have agreed an industry-wide package of measures for consumers.
These measures include refunds of around £60 million.
The industry has acted in response to FSA concerns over recent increases in premiums and reductions in what customers are covered for under their policy. The FSA's concerns centred on the terms permitting these changes, and how clearly they were disclosed.
Following discussions with relevant trade bodies and some firms, the industry has responded by agreeing to: proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy in 2009; offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during 2009; freeze premiums and cover for existing customers for at least the remainder of this year; and amend MPPI contracts to ensure that all customers are made aware of the circumstances in which firms have the right to vary premiums and cover.
Jon Pain, managing director of supervision at the FSA, said: "The FSA welcomes this positive move by MPPI firms. It will also give all MPPI customers clarity about when and why firms will be able to vary these in future.
"This clarity will provide the basis for MPPI to remain a valuable option for many mortgage customers who wish to take out protection, alongside the mortgage commitment they are taking on."
Firms will contact customers if their policy is affected, and will make all refunds by the end of June 2010.
