The Financial Conduct Authority (FCA) intends to launch a market
study into how pure protection insurance products are sold
following concerns that competition is not working well in the
market. The study will be launched later in 2024/25.
Pure protection products are designed to help individuals and
their families with their finances should the policyholder die or
become unable to meet their financial commitments. Around
£4 billion was paid out in claims in 2022. The products are
mainly sold through intermediaries like independent financial
advisers or mortgage brokers.
The FCA has concerns that the design of commission arrangements
may not allow firms to deliver good outcomes to policyholders.
The regulator is also concerned that some products may be
providing poor value, for example if the total premiums paid over
a lifetime far exceed the maximum conceivable payout.
In order to understand how the market is working the FCA will
explore consumers' engagement with and understanding of the
products they are buying, the competitive constraints on insurers
and intermediaries, and potential conflicts of interest in the
structure of commission.
The FCA will focus primarily on the sale of four specific types
of products – term assurance, critical illness cover, income
protection insurance and whole of life insurance including
policies for over 50s that offer guaranteed acceptance.
Sheldon Mills, Executive Director of Consumers and
Competition at the FCA, said:
“Pure protection can offer peace of mind and financial security,
often when people are at their most vulnerable. Consumers should
be able to buy products which meet their needs and provide fair
value.
“We have seen indications that this may not be the case across
the pure protection market and we will act if we find that the
market is not working well.”
The FCA is keen to hear any feedback on its Terms of Reference
and, ahead of launching the market study, will engage with firms,
industry groups and others to gather views on the market and the
issues we propose to examine.
Notes to editors
- Terms of Reference here.
- Term assurance: a policy which pays a lump-sum to
beneficiaries if the policyholder dies within a specified period.
- Critical illness cover: a policy which pays a lump sum to the
policyholder if they are diagnosed with a prescribed (non-fatal)
serious illness or medical condition.
- Income protection insurance: a policy which replaces part of
a policyholder's regular income if they become unable to work
because of illness, accident, or disability.
- Whole of life insurance, including guaranteed acceptance over
50s life insurance plans: these policies provide cover for the
policyholder's lifetime, paying out a lump sum to beneficiaries
on the policyholder's death. Guaranteed acceptance is a type of
whole of life insurance which doesn't require medical or health
information for an individual to qualify for cover.
