Practices around protections designed to offer peace of mind and financial security to those most vulnerable are being probed by the Financial Conduct Authority (FCA) after it said it concerns had been raised that competition is ‘not working well’ in the market.
Pure protection, a long term insurance which pays out in the event of the death or incapacity of the policy holder, are designed to help individuals and their families with their finances if the unthinkable happens. The products under review, term assurance, critical illness cover, income protection insurance and whole of life insurance, are predominantly sold through independent financial advisers (IFAs) and mortgage brokers. The FCA say over 19m individual pure protection policies were held by consumers in the UK in 2022 with around £4bn paid out in claims.
Concerns have been raised around the commission structures which ‘may not allow firms to deliver good outcomes to policyholders.’ There is also evidence some products may provide poor value as the total premiums paid exceed the potential payout. The market study, which will be launched later this year or next year, will focus on
- Term assurance. The sum assured under the policy is only paid out if death occurs within a specified term. If the life assured survives until the end of the term, the policy will expire and there will be no monies payable.
- Critical illness cover: a policy which pays a lump sum to the policyholder if they are diagnosed with a prescribed (non-fatal) serious illness or medical condition.
- Income protection insurance: a policy which replaces part of a policyholder’s regular income if they become unable to work because of illness, accident, or disability.
- Whole of life insurance, including guaranteed acceptance over 50s life insurance plans: these policies provide cover for the policyholder’s lifetime, paying out a lump sum to beneficiaries on the policyholder’s death. Guaranteed acceptance is a type of whole of life insurance which doesn’t require medical or health information for an individual to qualify for cover.
The study will explore consumers’ understanding and engagement with the products, competition in the market and how commissions are structured for resellers and intermediaries to ensure no conflicts of interest or consumer protection failures.
Commenting on the study, 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 FCA is inviting feedback on its Terms of Reference and has said it will be engaging with firms, industry groups and others to gather views on the market and the issues under examination.
