The Financial Conduct Authority (FCA) fears commission arrangements might prevent companies from rewarding policyholders. Credit: Mehaniq/Shutterstock.

The UK FCA has announced a market study into the sales of pure protection insurance products, focusing on potential issues with commission structures and the value provided to policyholders.  

The sector, which paid out nearly £4bn in claims in 2022, is under scrutiny to ensure that consumers are receiving good outcomes. 

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Pure protection insurance products are designed to aid individuals and families in securing their financial future in the event of death or inability to meet financial commitments.  

These products are predominantly sold through intermediaries such as independent financial advisers or mortgage brokers.  

The FCA’s concerns stem from the possibility that commission arrangements may hinder companies from delivering favourable results to policyholders. 

The probe will explore how consumers engage with and understand the products they purchase, the competitive constraints on insurers and intermediaries, and potential conflicts of interest due to commission structures.  

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It will primarily target four types of products – term assurance, critical illness cover, income protection insurance and whole of life insurance, including over-50s policies with guaranteed acceptance. 

FCA executive director of consumers and competition Sheldon Mills 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.” 

Scheduled to commence in the fiscal year 2024/25, this study follows the FCA’s July 2023 actions against home and motor insurers.  

The FCA had directed these insurers to improve customer service and claims handling after a review highlighted an uptick in complaints regarding insurance claims.  

This consistent regulatory attention underscores the FCA’s commitment to safeguarding policyholders’ interests in various insurance sectors.