The FCA is investigating pure protection insurance over concerns that competition is not working well in the market.
Pure protection products are designed to help individuals and their families with their finances should the policyholder die or become unable to meet financial commitments.
The products are mainly sold through intermediaries, such as 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.
It is also worried that some products may be providing poor value – for example, if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
Market study
In turn, the regulator is set to launch a market study into how pure protection insurance products are sold.
It 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.”
Gap insurance
This comes after the FCA investigated the guaranteed asset protection (Gap) market after feeling that it was failing to provide fair value to some consumers.
It led to the regulator announcing that 80% of the Gap market would be suspending sales in February 2024.
Several firms have now been allowed to recommence their sales of Gap products.
Earlier this month (22 August 2024), the FCA said that it could repeat the action it took with the Gap market in other sectors should products not meet Consumer Duty standards.
“Insurers need to make sure their customers are getting fair value,” the FCA’s director of insurance Matt Brewis said.
“Progress is being made, but we are still seeing too many examples of insurers and brokers lacking the right information, governance, or oversight to ensure their customers get consistently good outcomes.”