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Compliance Portal
August 30, 2024
The FCA has published a Terms of Reference for a Market Study focusing on the distribution of ‘pure protection’ products to retail customers. The FCA is launching the study because of concerns that competition is not working well in the market. Pure protection products are designed to help individuals and their families with their finances should the policyholder die or become unable to meet their financial commitments. The products are mainly sold through intermediaries like independent financial advisers or mortgage brokers. The intended scope of the Study is set out in Chapter 4 of the proposed Terms of Reference.
In 2022, over 19m individual pure protection policies were held by consumers in the UK, with the ‘top five’ firms taking between 70% and 90% of new business. The main distribution channel for pure protection products is via intermediaries, which can be a cost-effective way for an insurer to reach consumers, while consumers can benefit from intermediaries’ expertise and access to the market.
With perhaps a similar undertone to much recent FCA commentary about the insurance sector (value, intermediary remuneration), the FCA has concerns that:
- the design of commission arrangements may not allow firms to deliver good outcomes to policyholders; and
- that some products may be providing poor value (e.g., if the total premiums paid over a lifetime far exceed the maximum conceivable payout).
The FCA will explore consumers’ engagement with and understanding of the products they are buying, the competitive constraints on insurers and intermediaries, and potential conflicts of interest in the structure of commission. The FCA will focus primarily on the sale of four specific types of products: ,those being term assurance, critical illness cover, income protection insurance, and whole of life insurance (including policies for over 50s that offer guaranteed acceptance).
The issues the FCA intends to explore are:
- consumer needs, engagement and understanding;
- competitive constraints on insurers and intermediaries;
- commission incentives and potential conflicts of interest; and
- firms’ behaviour and practices.
The FCA will welcome any views on the intended scope of the market study and the issues it plans to explore, via by Friday 11 October 2024.
