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FCA announces work into pure protection market: "A recognised qualification should be mandatory"

ended 28. August 2024

The FCA has today announced it intends to launch a market study into how pure protection insurance products are sold following concerns that competition is not working well in the market.

Pure protection products, which are mainly sold through intermediaries like independent financial advisers or mortgage brokers, are designed to help individuals and their families with their finances should the policyholder die or become unable to meet their financial commitments. Around £4 billion was paid out in claims in 2022.

The FCA has concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders. The regulator is also concerned that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.

Newspage sought the views of experts, below.

10 responses from the Newspage community

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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
For many consumers, pure protection insurance delivers more smoke than security. However, the FCA's probe, which aims to shine a light on murky waters, could be the catalyst for much-needed reform or just another storm in a teacup. There are concerns that the market is not functioning optimally, with commission structures shrouded in opacity, resulting in suboptimal outcomes for consumers. For many, peace of mind comes at a steep price. In 2022, approximately £4 billion was paid out in claims, yet there are many instances where the total premiums paid over a policy's lifetime could greatly exceed the maximum conceivable payout. Additionally, there’s a growing concern that consumers might not fully grasp what they're purchasing, with many caught in a web of premiums and promises. The FCA intervention is overdue and represents a crucial step towards demystifying the insurance industry to ensure that consumers receive genuine value and aren't left navigating a maze of misleading promises.
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Daniel Hobbs
Managing Director at New Leaf Distribution
We welcome the Financial Conduct Authority's announcement of a review into loaded premiums and a market study into pure protection insurance products. These initiatives demonstrate a commitment to ensuring fair treatment and value for consumers in the insurance market. We believe that the FCA's focus on loaded premiums is particularly important, as this practice can lead to consumers paying inflated prices for their policies without necessarily receiving additional benefits. By examining commission arrangements and assessing product value, the FCA is taking steps to address potential concerns and promote healthy competition.
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Michelle Lawson
Director at Lawson Financial
Hopefully the FCA get the right end of the stick with this and don't overcomplicate things with their good intentions. This is not solely to do with the commissions: the protection market is still very disjointed, layered and untrusted by many and trying to simplify it has just caused consumer confusion. The comparison sites cheapen the need and don't go into sufficient detail that their offering is premium-driven as opposed to quality. The majority of the public are unaware of the differences with cover and availability of products unless they take the time to speak to a professional. Some brokers' premiums are loaded for commission purposes and some insurers offer different products via different channels. Consumers should be encouraged to have protection and take proper quality advice, not just click a few buttons to tick a few boxes.
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Wes Wilkes
CEO at IronMarket Wealth
Whilst I understand where the FCA are coming from here, again, they are spending time and resource on looking for issues on how a product is sold rather than spending time and resource on the huge gap there is in consumer protection take up and coverage. A joint approach between insurers and the regulator could possibly make a difference for the better and change lives.
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Justin Moy
Managing Director at EHF Mortgages
I would like to see the FCA look more at how the protection products are sold, rather than the remuneration, which has not changed for 30+ years. We have non-advised and advised processes in the same space, with direct-to-consumer options just for good measure to further cloud the water. Some channels even have loaded premiums making insurance more expensive. Appropriate advice-based service should be the minimum accepted standard, unregulated or non-advised channels are arguably the most dangerous and those unsolicited calls to clients for reviews by lead generation firms must be the first outlawed practice.
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Ben Perks
Managing Director at Orchard Financial Advisers
The reality is, if they play around with the commission structure too much, they could disincentivise brokers. This would result in fewer conversations, which is ulitmately bad for consumers. If a customer cancels their protection within the first few years, the adviser has to pay back commissions and these clawback conditions have prevented brokers from arranging protection for their own financial gain for some time. Regular review is always a good thing, but they need to tread carefully here. The emphasis should be on how the Insurance is sold, and the company sales structure. Not how the Broker earns a living.
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Elliott Culley
Director at Switch Mortgage Finance
The FCA will hopefully narrow in on bad practices such as loaded premiums that are still carried out by some in the industry. There is also a large number of people that are woefully under insured or have no cover at all and I'd hope the FCA can find some solutions to reduce these figures.
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Hannah Bashford
Director at Model Financial Solutions
This was a long time coming but it's a very positive step from the FCA. I welcome a look at the pure protection proposition and how it differs for firms when it comes to commissions and premium loadings. There seems to be some high volume businesses in the industry purely there for the commissions and this does not produce the right outcomes for consumers. A recognised qualification should be mandatory.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
The FCA need to tread very carefully here.

One of the main reasons that pure protection policies are predominately arranged via intermediaries, is because as advisers we want to ensure our clients are protected in the event of bad surprises.

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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whilst there are many areas of the protection market that could be improved and need review, I'm not sure that concentrating so much on the commission element of the product is the right way forward. Some people at the FCA have a real thing against commission, so I have a horrible feeling that elements of this study may be biased towards some form of client paid fee, rather than a commission, which would sadly mean even less people protecting themselves than they do now. Fingers crossed that the regulator has learned some lessons from their similar actions in the investment space. As for a basic level of qualification being required to advise clients in this area, to be honest it's always baffled me that there isn't one already, given protections fundamental importance to peoples financial planning.