UK Financial Conduct Authority Announces Work Into Pure Protection Market

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 4 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.   

Background

1. Read Market Study MS24/1.1: Market study into the Distribution of Pure Protection Products to Retail Customers - Proposed Terms of Reference.
2. Term assurance: a policy which pays a lump sum to beneficiaries if the policyholder dies within a specified period.
3. 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.
4. 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.
5. 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.