- Pure protection insurance policies are often sold through intermediaries
The Financial Conduct Authority (FCA) will investigate whether insurance firms are ripping off ‘vulnerable’ consumers taking out pure protection products.
Pure protection products are designed to help individuals and their families manage their finances if policyholders become unable to meet their financial commitments, typically through illness or death.
On Wednesday, the FCA said it had concerns that ‘competition is not working well in the market’.
Concerns: The FCA said it had concerns that competition was not working well in the pure protection market
The regulator said it suspected certain pure protection products may not be providing good value, particularly if the total premiums paid over a lifetime ‘far exceed’ the biggest potential payout.
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’s market study, set to be launched later in 2024/25, will focus primarily on the sale of four specific types of products – term assurance, critical illness cover, income protection insurance and some whole of life insurance products offering guaranteed acceptance for customers aged over 50.
Pure protection insurance policies are often sold through intermediaries like independent financial advisers or mortgage brokers.
The regulator said: ‘The FCA has concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.’
Around £4billion was paid out in claims against such policies in 2022, the FCA said.
The regulator said it wanted to explore consumers’ 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 study is the latest example of the FCA’s Consumer Duty push, and is likely to evoke memories of the mis-selling of payment protection insurance on loans, or PPI, between 1990 and 2010.
PPI was one of Britain’s costliest retail financial scandals, with banks paying out around £40billion in compensation.
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