After three years of falling share prices, many investment-linked products, so-called endowment policies, will not generate enough cash.

Millions of people already have received letters alerting them to the potential shortfall.

That number is set to rise this year, the Financial Services Authority said.

Red letter day

Speaking at a parliamentary hearing on Tuesday, the FSA’s chief executive John Tiner said about 70% of endowment policy holders will receive “red” warning letters this year, up from 50% in 2002.

Mr Tiner said that many borrowers will have missed out on the recent rally in stocks because many of the lenders had switched assets into less risky, lower returning, bonds.

At Tuesday’s meeting of the Treasury Select Committee, the FSA was accused by MPs of acting too slowly when tackling the problem of endowment mortgages and the companies accused of mis-selling them.

It was a charge Mr Tiner rejected, adding that it was time for the companies involved to stop talking about the problem and actively solve it.

Real Things

“I don’t just want to hear nice words,” he said. “I want to see it converted into real things that happen at the coal face.”

In September, the Financial Ombudsman Service - the body for investigating against financial service firms - said it expects to receive more than 50,000 complaints in 2003 relating to endowment mortgages, up from 13,500 last year.

The FSA on Tuesday said it has so far secured compensation of more than 800m ($1.4bn; 1.1bn euros) for about half-a-million consumers.

Earlier this year the FSA fined five companies including Royal & Sun Alliance for mis-selling endowment policies.

Salesman often sold the policies without adequately the risks to customers.

Insurers now have to write to endowment every two years and advise them on whether they are on track to meet their target sum.

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