The UK’s Financial Conduct Authority is to launch later in 2024/25 a market study into how pure protection insurance products are sold following concerns that competition is not working well in the market.
Around £4bn was paid out in claims in 2022 and the products are mainly sold through intermediaries such as independent financial advisers or mortgage brokers.
The regulator said in a statement today (28 August) that it had concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders. It 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 further said it was 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 it proposes to examine.
In early reaction to the proposed study, Tim Hogg, director at Fairer Finance said: “There are important issues for this market study to investigate – this is long overdue. Market failures in pure protection are leading to harm for existing customers, while under-insurance means that far too many people are not protected at all.
“Some over 50s products offer notoriously low value to customers, who can end up paying significantly more in premiums than their family will ever receive in payouts. The nature of competition in this market has led to intermediaries sometimes receiving what appear to be high commissions, resulting in lower value products for consumers. There are also concerns about competition weakening due to firms exiting the market – and lower competition is likely to lead to worse outcomes for consumers in the long run.”
