The Financial Conduct Authority (FCA) will launch a market study into pure protection products, which are designed to help individuals and their families with their finances should a policyholder die or be unable to cover financial commitments, after becoming concerned about how such policies are being sold.
The FCA stated around £4 billion was paid out in claims in 2022. The FCA stated that the commission arrangements which facilitate the sale of some products may be structured unfairly. These tend to be sold through intermediaries such as mortgage brokers or independent financial advisors.
The FCA declared some concerns over “poor value” to consumers, including the amount of total premiums paid “far exceeding” the eventual conceivable payout.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, commented: “Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable. 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 stated the first step in examining the relative competitiveness of practices in the pure protection sector would be to use a study to explore the customer experience and degree of understanding of the products they were buying.
The FCA will also examine “competitive constraints” on insurers and intermediaries with “potential conflicts of interest in the commission structure”.
The FCA’s investigation will primarily look at the sale of four types of pure protection products: term assurance, critical illness cover, income protection insurance and whole of life insurance, including policies for over-50s that offer guaranteed acceptance.
Mills concluded “Consumers should be able to buy products which meet their needs and provide fair value.”
