Market study set over concerns that commission structures may not benefit policyholders
The Financial Conduct Authority (FCA) has announced plans to initiate a market study into the sale of pure protection insurance products amid concerns about market competition.
Pure protection insurance products, which provide financial support to policyholders and their families in the event of death or inability to meet financial obligations, saw approximately £4 billion in claims paid out in 2022. These products are predominantly distributed through intermediaries, such as independent financial advisers and mortgage brokers.
The FCA has raised concerns that current commission structures may not be conducive to delivering positive outcomes for policyholders. The regulator is questioning the value of some products, particularly where total premiums paid over a policy’s lifetime may significantly exceed the maximum potential payout.
To assess the market’s effectiveness, the FCA will examine consumer engagement with and understanding of the products, competitive pressures on insurers and intermediaries, and possible conflicts of interest in commission structures.
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. #FinancialServices #ConsumerProtectionhttps://t.co/AVmcqKWLVv
— Financial Conduct Authority (@TheFCA) August 28, 2024
The pure protection market study, which is scheduled to commence later in the 2024/25 financial year, will concentrate on four key product types: term assurance, critical illness cover, income protection insurance, and whole of life insurance, including policies for over-50s with guaranteed acceptance.
“Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable,” said Sheldon Mills (pictured), executive director of consumers and competition at the Financial Conduct Authority. “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 seeking feedback on its terms of reference and will engage with firms, industry groups, and other stakeholders to gather insights ahead of launching the study.
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