The Financial Conduct Authority (FCA) has published its final Pure Protection Market Study report, setting out the work it will do to protect consumers.
In a statement accompanying the report, the FCA said: “While the market is working well for consumers who have protection insurance, millions of people remain unprotected. Around 58% of adults have no life insurance, critical illness cover or income protection – and 59% of that group has never considered it. This means that millions could be left vulnerable in the event of a death in the family, serious illness or loss of income.”
To help more people consider whether protection insurance is right for them, the FCA will join forces with partners from industry, government and consumer groups, with a series of actions focused on groups who are disproportionately unprotected such as renters, the self-employed and gig economy workers, those on lower incomes and people with pre-existing medical conditions.
Measures announced in the report include a campaign from The Money and Pensions Service and the Digital Property Market Steering Group to prompt people to think about protection at key moments – such as becoming a parent or buying or renting a home.
The Protection Distributors’ Group will lead a consumer awareness campaign, targeted at groups who are less likely to take out protection products, and The Association of Mortgage Intermediaries will lead work to help advisers improve how they discuss protection with their customers.
Graeme Reynolds, director of competition at the FCA, said: “Competition in protection insurance works well for existing customers. But we’re working with partners to increase coverage – so that more people are protected when they or their families need it most.”
The FCA has also published findings on switching, claims experiences and fair value in the protection market. Generally it found that competition works well in the market, but it has reminded firms of requirements and good practice under the Consumer Duty and its product governance rules. It isn’t planning new market-wide measures, but will take action where firms fall short of requirements.
The report has been welcomed by finance experts, with Rob Clifford, chief executive of Stonebridge mortgage and protection network, calling it “the most important regulatory review of the protection market for years” that will benefit the industry and consumers equally.
He explained: “What the regulator confirms is what we believed was clear. There are no findings of consumer harm or misselling, as the advice sector is delivering good outcomes. The fact is that too few consumers are taking up the protection policies available to them. The industry, including insurers and distributors, has been reminded that the protection gap must be tackled to prevent unnecessary financial harm.
“The FCA has set out a collaborative approach aimed at addressing this problem and the determination that shines through here represents a step change in improving the protection market, which promises to hold enormous power over the reduction of financial vulnerability among households. We know that mortgage networks have a huge role to play and we’ll continue to invest heavily in the soft skills and technology advisers need to close this gap.
“Then there’s the ‘beneficiary gap’ that results from policies not being written into trust to avoid payouts getting stuck in probate with the rest of someone’s estate. We’ve been improving advisers’ awareness and use of trusts in protection for years and we’re delighted this has received special attention in the report. While not suitable in all cases, trusts can rescue families from impossible financial situations when it matters most.”
Ewen Tweedie, actuarial director at independent financial services consultancy Broadstone, said the measures in the report are “sensible steps”.
He explained: “The FCA has correctly identified that the greatest weakness in the pure protection market is not necessarily the products themselves, or even the price of the products, but the fact that millions of people never consider whether they need cover. This indicates a shift from a conduct viewpoint focused on value, to a growth viewpoint focused on engagement.
“Prompts at key life events and greater adviser engagement are sensible steps. The decision not to extend targeted support is understandable, as it would largely help consumers who are already engaged, but the scale of the gap means policymakers may ultimately need to go further than voluntary awareness initiatives. This presents an opportunity for insurers to consider how they are not just taking their products to market, but how they are promoting the importance of protection for all.
“The workplace could provide an effective route to wider coverage. Auto-enrolment has shown how employment can help overcome inertia, and there is a strong case for government, employers and providers to explore how simple protection products could be incorporated more consistently into workplace benefits. Providing new employees with protection prompts and information could be a simple way to increase awareness and engagement.
“More consistent claims statistics would also help advisers compare providers on a level playing field and strengthen consumer confidence in the value of protection insurance.
“The protection market isn’t broken, but participants through the value chain should consider how they can work together to increase engagement and make protection more accessible for all.”
James Shattock, managing director, protection and retail retirement at L&G, agreed. He said: “[The] findings rightly highlight that more needs to be done to close the UK’s protection gap and help people better understand the role protection can play in building financial resilience.
“We look forward to continuing to work with regulators, advisers and industry partners to improve access to protection and ensure more people can benefit from the financial security it provides.”
