The Financial Conduct Authority (FCA) has published the interim findings of its competition review of pure protection products and found that, for those consumers that have taken out protection insurance, the market mostly works well.
There are a wide range of products, most consumers can claim when they need to, and the costs of cover have remained stable in the last few years, the FCA said. However, 58% of adults do not hold a pure protection product even though many could benefit from them, and the FCA says it wants to help close this gap.
The organisation says the gap exists because consumers aren’t aware of their needs and aren’t prompted to consider them, with other issues including the ability to pay, misunderstandings about the product or improvements needed in the sales process.
Pure protection products – which provide financial support if a specified event happens to the policyholder or their dependants – typically include life insurance which pays out on death or terminal illness, critical illness insurance, which pays a lump sum if the policyholder is diagnosed with a specified serious illness, and income protection insurance, which provides regular payments if someone is unable to work due to illness or injury.
The FCA says it is exploring what more can be done to raise awareness of the protection and is working with industry and other stakeholders to better support consumers.
Graeme Reynolds, director of competition and interim director of Insurance at the FCA, commented:
“These insurance products play a vital role in helping families manage some of the most difficult experiences in life. While competition in the market is mostly working well for consumers, many more people could benefit from protection. We will work with industry to reduce this gap, to help consumers navigate their financial lives.”
Mortgage intermediary the Mortgage Advice Bureau (MAB) welcomed the report, calling it a positive development that reflects the “constructive and ongoing dialogue” it has with the FCA.
“The FCA’s findings are a positive and reassuring outcome for the protection market and for firms that have consistently focused on delivering good consumer outcomes,” said Peter Brodnicki, MAB founder and CEO.
“Protection advice plays a critical role in supporting financial resilience, and intermediaries are central to helping customers access appropriate cover.
“As discussed at our recent Capital Markets Update, protection is a strategic growth priority for MAB. We are investing in dedicated capability alongside our core mortgage proposition, and the FCA’s recognition of the need to address the protection gap reinforces the long-term opportunity in this market. MAB is well-positioned to support customers while continuing to operate to the highest regulatory standard.
“Periods of regulatory uncertainty have created an overhang for the sector. The FCA’s continued emphasis on proportionate, outcomes-based regulation, including its work on the Mortgage Rule Review, is therefore welcome. A clear regulatory framework that balances consumer protection with sustainable growth is critical to improving access, choice and advice for borrowers.”
