Endowment providers should review their complaints procedures, the City watchdog has said.
Seeking redress? You may not have been treated fairly
The Financial Services Authority (FSA) believes some firms are not treating customer complaints fairly.
Thousands of endowment holders, who believe they were wrongly advised, are currently pursuing mis-selling claims.
The policies were heavily promoted in the 1980s as way of re-paying mortgage debt, although eight out of 10 policyholders are facing shortfalls.
The FSA's warning follows concerns raised to it by the Financial Ombudsman Service, a financial arbitration scheme, over how firms are handling complaints.
The ombudsman has told the FSA that it is receiving a rising numbers of complaints against firms.
It is also upholding a high level of complaints against some firms, "suggesting that these firms may not be handling complaints properly".
In the worst cases, it said that some firms were refusing to comply with awards made by the ombudsman until threatened with court action.
Eight out of 10 endowment mortgage holders are facing a shortfall
Average shortfall across policies is £5,500, adding up to £40bn overall
Six in 10 policyholders could have been victims of mis-selling
2013 will be the peak year for endowments reaching maturity
Just 5% of new mortgages taken out in 2002 were endowments
Under existing rules, people who believe they have been mis-sold must complain to the firm that advised them. If they are unhappy with the outcome of this initial complaint, they can then approach the ombudsman.
In a letter to industry chief executives, Clive Briault, FSA managing director, warns firms not to shirk away from their responsibilities and offload cases onto the ombudsman.
"Firms should not manage their own caseloads by allowing an excessive number of complaints to flow through to the Financial Ombudsman Service," he said.
Mr Briault also said the FSA's research had identified "inconsistencies in some firms' decision-making".
"Such behaviour is not in keeping with the spirit or letter of our requirements," he said.
The endowment complaints procedure has been heavily criticised by consumer groups.
The current system means that many people are barred from claiming compensation because they bought their policies before consumer protection measures were introduced.
The FSA previously wrote to providers in 2002, warning them about dealing with complaints properly.
It has also fined firms over the way they have handled complaints.
Most recently, in December 2003, it fined Friends Provident £675,000 and, in March 2004, it fined Allied Dunbar £725,000.
But Which?, formerly the Consumers' Association, believes the FSA should change its approach to endowment mis-selling.
Which? wants the FSA to order a wholesale re-investigation of all rejected complaints to ensure people have been dealt with fairly.
"The FSA must continue to take these bad apples to task by immediately naming and shaming them, and then implementing significant fines where rules have been broken," Louise Hanson, head of campaigns at Which?