UK regulator the Financial Conduct Authority (FCA) has initiated a market study to evaluate the distribution of pure protection insurance products and their alignment with consumer interests.
The study aims to assess if the market operates in accordance with the FCA’s operational objectives and consumer protection regulations.
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Pure protection products such as term assurance, critical illness cover, income protection insurance and whole of life insurance are designed to support individuals and their dependents financially in cases of death, incapacitation or injury.
The FCA expressed concerns over practices that may not represent fair value, such as unnecessary consumer switching driven by intermediaries.
It also voiced concerns over commission practices that could inflate premiums, and potential fair value issues with some products such as guaranteed acceptance over 50s insurance.
In 2023, pure protection insurance policies led to around £4.85bn ($6.27bn) being paid out in claims to support people affected by bereavement, illness and injury.
The FCA is concerned that commission structures may influence consumer outcomes and the overall value and design of the products.
The authority committed to a detailed examination of the sector in August of the previous year and sought feedback from the market before finalising the terms of reference for the study.
This study will assess whether the commission structure incentivises advisers to recommend unnecessary switching, if insurers are raising premiums to pay higher commissions to intermediaries and whether the products offer fair value.
The FCA plans to publish initial findings and any proposed next steps by the end of 2025.
FCA supervision, policy, competition and international executive director Sarah Pritchard said: “Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness or injury. 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 today, we will be able to take a closer look before considering next steps. We will keep stakeholders regularly updated and welcome the feedback to date that will help us plan the scope of this review.”
