Insurers are refusing to renew cover for Halifax Bank of Scotland (HBOS) and Lloyds TSB staff, as fears grow over job losses in financial services.

Hitachi Capital, which has 330,000 UK customers, refused to renew a Lloyds TSB employee’s mortgage-payment protection policy at renewal this month, removing cover when he needed it most.

While it is common for insurers to turn down new customers working in what is perceived as an “at risk” industry such as financial services today, existing customers assume they will be protected.

City analysts have predicted that the merger of HBOS and Lloyds TSB alone could lead to 40,000 job losses. Bradford & Bingley cut 370 staff last week, and the number of people out of work in the UK rose by 81,000 between May and July, to 1.72m, according to government figures.

Insurers have also been raising premiums for existing customers at renewal as job losses increase. Paymentcare, which provides payment protection insurance (PPI) to cover loan or card repayments if you lose your job, has increased premiums by about 12% for some customers. Assurant has also lifted rates by up to 45%, although its average increase is about 24%.

Simon Burgess of British Insurance, another PPI provider, said: “The industry has been making obscene profits when times were good. When times turn nasty, they withdraw cover. How can this be treating customers fairly?”

One Sunday Times reader from Hove, East Sussex, who does not want to be named, was sent a letter by Hitachi Capital this month telling him and his wife that their policies would not be renewed.

The couple — one works in IT and the other at Lloyds TSB — have each been paying Hitachi £17.50 a month for the past two years. In the event of job loss, their mortgage would have been covered for up to £1,600 a month.

The reader said: “In the current climate we may find it difficult to get cover from anywhere else, which means we’re left with no protection exactly at the time that we need it.”

Hitachi reviews PPI policies once a year and can opt not to renew a policy. Steve Lawler of Hitachi Capital said: “It’s the same with any insurer. A buildings insurer could refuse cover if you have too high a flood risk, for example.”

He insisted that only a few policyholders were denied a renewal and that it was not an “across-the-board” policy.

There are, however, plenty of other ways to protect yourself.