The Financial Conduct Authority (FCA) has launched an in-depth market study (MS24/1: Pure Protection Market Study) into the distribution of pure protection insurance products. This move highlights the FCA’s commitment to safeguarding consumers and ensuring that insurance providers offer products that deliver genuine value.
What Are Pure Protection Insurance Products?
Pure protection insurance policies are designed to provide financial security in times of crisis. These products typically include:
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- Term Life Insurance
- Critical Illness Cover
- Income Protection Insurance
- Whole of Life Insurance
These policies serve as crucial safety nets, offering peace of mind to millions of UK consumers. As of 2022, more than 19 million pure protection policies were in place across the country, demonstrating their widespread use and importance.
Why Is the FCA Investigating This Market?
While pure protection insurance is essential, the FCA has concerns about whether consumers are receiving fair value. The market study will assess:
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- Commission Structures – Some commission models may not align with consumer interests, leading to potential mis-selling, particularly given that commission for retail investment products has been banned for over a decade now.
- Fair Value Assessment – There are questions about whether premiums paid by policyholders reflect the benefits they receive. (See FCA Handbook: ICOBS 2.5-2.7)
- Market Competition – The exit of some insurers has raised concerns about reduced competition and potential impacts on pricing and innovation.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, emphasised the importance of consumer protection:
“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.”
What This Means for Consumers and Industry Players
The FCA’s study is expected to have significant implications:
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- For Consumers: This initiative seeks to enhance transparency and ensure fair pricing, giving consumers confidence in their insurance choices.
- For Insurers and Intermediaries: Firms may need to review their commission models, pricing structures, and sales practices to align with regulatory expectations and enhance customer value.
What Happens Next?
The FCA has launched the study with an interim report expected by the end of 2025. Throughout the year, it will release topic-specific analyses and engage with stakeholders. If necessary, the FCA may introduce measures to enhance competition and innovation while ensuring fair outcomes for consumers. However, the study will focus on future improvements rather than past conduct.
How Complyport Can Help:
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- Regulatory Guidance and Compliance Support: Interpret the FCA’s findings and regulatory expectations. Ensure firms comply with fair value and commission structure requirements.
- Governance and Risk Assessments: Conduct gap analyses to identify areas of non-compliance. Review existing policies to align with FCA’s competition and consumer protection goals.
- Product and Distribution Review: Assess whether products offer fair value to consumers. Evaluate commission models to ensure they meet FCA expectations.
- Stakeholder Engagement and Reporting: Assist with FCA consultations and responses to regulatory requests. Keep firms updated on regulatory changes and best practices.
- Training and Ongoing Compliance Monitoring: Provide training for firms on FCA expectations and fair value principles. Establish compliance frameworks to continuously monitor product value and distribution practices.
Contact Us
Our team can help firms navigate the FCA’s expectations on fair value and commission structures. Contact us to book a consultation with a Subject Matter Expert.
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