Context
The FCA has announced that it is to commence its planned Market Study into the pure protection market, and has published the finalised Terms of Reference accordingly. The study will consider how well the distribution of pure protection insurance products – which support families with financial commitments if someone becomes critically ill or dies – is working for consumers. The types of products in question are term assurance, critical illness cover, income protection insurance and whole of life insurance. Private medical insurance is out of scope, as well as funeral plans and accident, sickness, and unemployment products.
Key points to note and next actions
While the FCA has seen indications of good outcomes for consumers and relatively few complaints, there are concerns that commissions used to sell these products may affect the outcomes consumers receive and the products’ value or design. The value-related findings, therefore, will include the value of the products themselves, and the value that the distributors are adding for the commissions they are earning. As such, the output from this study may be relevant to the distribution of other types of insurance.
The FCA committed to looking into the sector in further detail in August last year but, prior to launching, took feedback from the market on the terms of reference.
The study will examine whether:
- the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers;
- premiums are being raised by insurers to pay a higher commission to an intermediary;
- the products provide fair value; and
- the market supports innovation and growth.
The FCA wants to develop a better understanding of:
- barriers to innovation and investment;
- the ‘protection gap’ – the extent to which customers, who would benefit from cover, are not adequately covered; and
- ‘access to cover’ – access for those customers that fall outside a typical definition of a ‘healthy life’, such as those with existing medical conditions.
Initial findings and any proposed next steps will be published by the end of 2025