"In launching the study today, we will be able to take a closer look before considering next steps."
- Sarah Pritchard, Executive Director of Supervision, Policy, Competition & International at the FCA
In August 2024, the Financial Conduct Authority (FCA) announced its intention to launch a market study into how pure protection insurance products are sold following concerns that competition is not working well in the market.
“Consumers should be able to buy products which meet their needs and provide fair value,” said Sheldon Mills, Executive Director of Consumers & Competition at the FCA, at the time.
READ MORE: FCA announce intention to launch protection market study following competition concerns
Today, the FCA has launched this market study looking at how well the distribution of pure protection insurance products is working for consumers. The industry watchdog said the study will examine whether:
- the structure of commission encourages advisers to suggest switching that may not be beneficial for customers,
- premiums are being raised by insurers to pay a higher commission to an intermediary,
- the products provide fair value,
- the arket supports innovation and growth
The market study will focus primarily on the sale of four products – Term Assurance, Critical Illness Cover (CIC), Income Protection (IP), and Whole of Life (WOL). The FCA has confirmed that Private Medical Insurance (PMI) is out of scope, as well as funeral plans and Accident, Sickness & Unemployment (ASU) products.
Initial findings and any proposed next steps will be published by the end of 2025.
“Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness, or injury. We’re determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements,” said Sarah Pritchard, Executive Director of Supervision, Policy, Competition & International at the FCA.
“In launching the study today, we will be able to take a closer look before considering next steps. We will keep stakeholders regularly updated and welcome the feedback to date that will help us plan the scope of this review,” she concluded.
Reacting to the launch, Tim Hogg, Director at Fairer Finance, said, “The design and size of some commission payments appear to be hurting – rather than helping – consumers. Pure protection markets could be working better for consumers.”
He believes the FCA has “started to do its homework in understanding commission payments and is signalling that it will get under the skin of whether commissions should be restricted or reformed.
“Ultimately, many people aren’t buying Life Insurance when they would benefit from it. Communications about Life Insurance remain complex and off-putting. Purchasing journeys can be lengthy and contain high levels of friction triggering negative emotional responses with the medical questions,” Tim added.
Jamie Jenkins, Director of Policy at Royal London, agreed that the market study is a “great opportunity to assess where the protection market currently delivers well for consumers and where improvements can be made.”
He said: “Enabling consumers to access products that suit their needs from providers they can trust supports a market where they can be financially resilient across their lifetime. There must be a thriving market of providers to encourage competition and innovation.
“This is particularly important at a time when the Government is reviewing the role of the State through welfare and employment reforms that seek to clarify where support will be offered, and the extent to which that can be given,” Jamie explained.
Of particular interest, he hopes it’ll be acknowledged that “protection is a commonsense purchase and one which is typically sold rather than bought.” Jamie believes advisers need incentives to help their customers understand their needs and how best to meet them.
“Any solution should recognise the need for flexibility in commission while ensuring recommendations are unbiased and provide fair value,” he said.
David Gray, Senior Consultant Actuary at Broadstone, highlighted that pure protection plays a “critical role” in Financial Services, “but it also delivers products that are implemented at times of extreme personal loss, distress, and uncertainty in the case of death and ill-health or injury.”
“While the FCA points to many current positive indicators and outcomes for consumers, it evidently has concerns around aspects such as commission arrangements and barriers to investment and innovation.
“The market study is in line with the regulator’s intense focus on value and fairness for the consumer. These objectives are crucial for building trust and ensuring that the system is working throughout the value chain,” he added.
