The UK’s financial regulator has launched an investigation into insurers over concerns that the life insurance and income protection market is not working.
The Financial Conduct Authority (FCA) said that it would look at “pure protection” products, which pay out if the policyholder dies or is incapacitated due to illness or injury.
It will look specifically at four products: term assurance, critical illness cover, income protection insurance and whole of life insurance, including policies for over-fifties that offer guaranteed acceptance. It said it will examine “potential conflicts of interest in the structure of commission”.
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 regulator raised concerns that some products would be providing poor value such as cases where total premiums paid over a lifetime far exceed the maximum conceivable payout. Around £4bn was paid out in pure protection insurance claims in 2022, according to the FCA.
The watchdog said it was concerned that “the design of commission arrangements may not allow firms to deliver good outcomes to policyholders”.
The study will center on four types of insurance products: term assurance, critical illness cover, income protection insurance and whole of life insurance, including policies for over-fifties that offer guaranteed acceptance.
The products are mainly sold through intermediaries like independent financial advisers or mortgage brokers.
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.
The financial watchdog has rebuked home and motor insurers over their treatment of vulnerable customers and their handling of complaints and warned it will clamp down on insurers that fail to settle claims appropriately and in a timely manner.