Industry experts have welcomed the Financial Conduct Authority’s review into pure protection insurance products.
The review will look at how effectively the protection market is working for consumers, noting that there are “concerns” that commissions used to sell these products may affect the outcomes consumers receive and the products’ value or design.
In 2023, around £4.85 billion was paid out in claims on individual policies to support people suffering from bereavement, illness and injury.
The regulator said it will examine whether the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers and whether premiums are being raised by insurers to pay a higher commission to an intermediary. It also plans to explore whether the products provide fair value and the market supports innovation and growth.
The market study will focus primarily on the sale of term assurance, critical illness cover, income protection insurance and whole of life insurance.
Sarah Pritchard, executive director of supervision, policy, competition and international at the FCA, said: “We are determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements.
“In launching the study, we are able to take a closer look before considering next steps.”
The study, which will publish its initial findings and next steps by the end of 2025, was met with support from industry commentators.
David Gray, senior consultant actuary at Broadstone, said: “It is really important that the protection sector is working well for consumers and that the selling of products like income protection and whole of life insurance is delivering fair value and comprehensive cover over a suitable term. 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.
“We believe that a wider take up of affordable protection policies can greatly increase societies’ financial resilience.
“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.”
Jamie Jenkins, director of policy at Royal London, commented: “The FCA market study is a great opportunity to assess where the protection market currently delivers well for consumers and where improvements can be made. It is imperative that there is a thriving market of providers to encourage competition and innovation.”
Jenkins said he is particularly interested in several key areas that he hopes will be addressed. These include recognising that advisers need incentives to help their clients 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 explained.
Jenkins said building consumer confidence will also be an important step towards improving the market.
“The industry needs to enhance its practices and ensure that consumers can make informed decisions about their finances and trust in the support being offered to them.
“Finally, consumers need access to comprehensive and targeted advice to ensure they are able to consider protection while accommodating their diverse needs and budgets,” he added.
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