"The protection market isn’t broken, but participants through the value chain should consider how they can work together to increase engagement and make protection more accessible for all."
- Ewen Tweedie - Broadstone
The FCA has today published its final report on the Pure Protection Market Study, launched "to evaluate whether the distribution of pure protection works well against our operational objectives, including whether competition works in consumers’ interest."
The report found that competition in the distribution of pure protection products "generally works well for product holders and delivers good outcomes," including a wide range of products on offer and high claims acceptance rates, whilst in general the proportion of premiums paid in claims is over half and new business premiums remain "relatively stable."
However, the report also identified that of the 58% of people without protection products, 59% of them have never considered their protection needs, leading to a protection gap that the FCA suggests stems from "limited consumer awareness and understanding, or from challenges in the sales process making access difficult."
The FCA also notes that the protection gap has the biggest impact on consumers with "more complex needs, less stable incomes, lower financial resilience or fewer opportunities to engage with protection products through established distribution channels.” This includes renters and self-employed and gig economy workers, as well as people on lower incomes or with pre-existing medical conditions.
The FCA points out that "addressing the protection gap therefore also supports wider efforts to improve financial inclusion."
As a result, the FCA says that the Money and Pensions Service and the Digital Property Market Steering Group will work to prompt people to think about protection at key moments, such as becoming a parent or buying or renting a home. The FCA is also exploring how other partners can help to raise awareness of protection in such key life moments.
In addition, the Protection Distributors' Group will lead a consumer awareness campaign, targeted at groups who are less likely to take out protection products, and the Association of Mortgage Intermediaries will lead work to help advisers improve how they discuss protection with their customers.
The FCA also found that there are still some aspects of the supply side that "can cause issues," such as a complex and lengthy sales or underwriting process, and a lack of clarity around regulatory requirements affecting innovation in product design, distribution and consumer journeys.
In an attempt to improve access, the FCA will run a TechSprint, support initiatives to tackle delays in obtaining medical evidence, and run a myth‑busting webinar for firms to address regulatory uncertainties.
The market study will now move into an implementation phase, with work and industry-led action set to begin by the end of 2026.
"Competition in protection insurance works well for existing customers. But we’re working with partners to increase coverage - so that more people are protected when they or their families need it most," Graeme Reynolds, director of competition at the FCA, said.
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Ewen Tweedie, actuarial director at Broadstone, commented: "The FCA has correctly identified that the greatest weakness in the pure protection market is not necessarily the products themselves, or even the price of the products, but the fact that millions of people never consider whether they need cover. This indicates a shift from a conduct viewpoint focused on value, to a growth viewpoint focused on engagement.
"Prompts at key life events and greater adviser engagement are sensible steps. The decision not to extend targeted support is understandable, as it would largely help consumers who are already engaged, but the scale of the gap means policymakers may ultimately need to go further than voluntary awareness initiatives. This presents an opportunity for insurers to consider how they are not just taking their products to market, but how they are promoting the importance of protection for all.
"The workplace could provide an effective route to wider coverage. Auto-enrolment has shown how employment can help overcome inertia, and there is a strong case for government, employers and providers to explore how simple protection products could be incorporated more consistently into workplace benefits. Providing new employees with protection prompts and information could be a simple way to increase awareness and engagement.
"More consistent claims statistics would also help advisers compare providers on a level playing field and strengthen consumer confidence in the value of protection insurance.
"The protection market isn’t broken, but participants through the value chain should consider how they can work together to increase engagement and make protection more accessible for all."
However, James Daley, managing director of consumer group Fairer Finance, called the study a "missed opportunity," adding that "the regulator has acknowledged many of the problems in the market - from loaded premiums to poor value offered by over 50s plans, but then concludes that no market-wide action is necessary.
"While it’s great that the regulator is looking at ways to close the protection gap and grow the market, it has missed an opportunity to iron out some of the wrinkles that have been delivering poor customer outcomes. Market studies tend to be a once-in-a-generation event, and the question begs why this exercise was carried out at all if it was going to conclude with no real action."
James Shattock, managing director, protection and retail retirement at L&G, welcomed the report "and its recognition that the protection market is delivering good outcomes for many customers."
"However, the findings rightly highlight that more needs to be done to close the UK’s protection gap and help people better understand the role protection can play in building financial resilience," he continued. "We look forward to continuing to work with regulators, advisers and industry partners to improve access to protection and ensure more people can benefit from the financial security it provides."
Debbie Kennedy, chief executive at LifeSearch, noted that "the FCA looked hard at this market and backed it," calling the report "a vote of confidence in the protection market and a green light for growth."
"What matters now is what we do with that confidence," she added. "We have a regulator focused on growth, with pragmatic Consumer Duty guardrails in place, and a shared recognition that the biggest challenge is closing the protection gap.
"Crucially, the FCA has chosen collaboration and delivery over significant new intervention. The market has been shown to be working well for customers, and the focus now turns to improving awareness, increasing access, and supporting innovation so that more people can benefit from protection.
"We look forward to working with the FCA, AMI, PDG and the wider industry as this moves into delivery, and to playing a full role in the adviser engagement initiatives and awareness campaign that will follow. Closing the protection gap will take sustained, collective effort, and LifeSearch remains fully committed to that work."
