For some people the change will be even worse. The Insurance Ombudsman, Dr Julian Farrand, can award large sums for stress and emotional upset, while the new Personal Investment Authority will only pay up to pounds 750 for non-financial loss.
Investors unhappy at the treatment they have received from life insurance companies should complain now before this part of the Ombudsman's work is transferred to the PIA.
The Insurance Ombudsman Bureau's compensation limit is twice the pounds 50,000 people will be entitled to under the proposed new scheme.
Complainants are also likely to find that their grievances will be dealt with in a less legalistic manner if they take them to Dr Farrand.
He warned late last year of a potential tidal wave of claims to his office as people try to take advantage of its higher payouts. The number of complaints last year leaped to more than 8,000, up 46 per cent on the 1992 total.
The name of the PIA Ombudsman is expected to be announced in the next few weeks. He or she will tackle complaints levelled at all PIA members, including independent financial advisers, high street banks' insurance arms and unit trust companies' sales arms.
David Peffer, secretary to the PIA, said: 'The advantage of the new system is that it is mandatory on all its members, unlike that of the Insurance Ombudsman.
'Although our scheme does have a maximum award limit of pounds 50,000, there is a voluntary arrangement beyond that limit for all members.'
Mr Peffer said another reason for the PIA's pounds 50,000 compensation limit was that it matched the current Investors' Compensation Scheme, which pays out when firms of independent advisers go bust.
The Insurance Ombudsman has won praise for the way his awards often include large amounts for the emotional trauma suffered by investors. Elderly people conned into taking out home income plans not only won awards averaging more than pounds 50,000, but the awards often included several thousand pounds for emotional injury, compared with the new Ombudsman's pounds 750 maximum.
Mr Peffer denied suggestions that this and the pounds 50,000 compensation limit were deliberately pegged low to allow some PIA members to pay lower insurance indemnity, to meet their compensation claims. But he admitted: 'The markets understand legal more than moral liability.'
Gareth Marr, a partner in Moors Marr Bradley, a firm of independent financial advisers in Milton Keynes, was on the PIA committee that designed the Ombudsman's new rules.
He said: 'People tend to forget that the Insurance Ombudsman could be so generous because he was tackling insurance companies who are perceived to have a lot of money.
'Many PIA members won't have that kind of money. Maybe the only way to have a compensation scheme is by making it more legalistic. That may be sad, but it is a fact of life.
'People should also remember that Dr Farrand only offered compensation in one-third of cases. He turned the rest down.'Reuse content