The FCA has today launched a wide-scale review of the £4.85bn protection insurance market and whether commissions paid on products affect consumer outcomes.

The FCA says it wants to know if the distribution of pure protection insurance products is working in the best interests of consumers.  

The regulator defines pure protection products as those which support families with financial commitments if someone becomes critically ill or dies.

The review will cover: term assurance, critical illness cover, income protection insurance and whole of life insurance.

According to the watchdog, in 2023, around £4.85bn was paid out in claims on individual policies to support people suffering from bereavement, illness, and injury.

The market study review will investigate how effectively what it calls an important market is working.

The FCA says it has seen indications of good outcomes for consumers and relatively few complaints but says there are concerns that commissions used to sell the products may affect the “outcomes” consumers receive and the products’ value or design.

The FCA committed to looking into the sector in further detail in August last year, but prior to launching a review, took feedback from the market on the terms of reference.

The study will examine whether:  

• the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers  
• premiums are being raised by insurers to pay a higher commission to an intermediary
• the products provide fair value
• the market supports innovation and growth

The study will allow the FCA to carry out a more detailed analysis in these areas, the FCA says, using its competition powers. It said the launch of the probe does not “presuppose” any particular outcome. Initial findings and any proposed next steps will be published by the end of 2025. 

Sarah Pritchard, executive director of supervision, policy, competition and international at the FCA, said: “Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness, or injury. We are determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements.

“In launching the study today, we will be able to take a closer look before considering next steps. We will keep stakeholders regularly updated and welcome the feedback to date that will help us plan the scope of this review.”

Jamie Jenkins, director of policy at Royal London, said: “The FCA protection market study, launched today, is a great opportunity to assess where the protection market currently delivers well for consumers and where improvements can be made. 

“Enabling consumers to access products that suit their needs from providers they can trust supports a market where they can be financially resilient across their lifetime. It is imperative that there is a thriving market of providers to encourage competition and innovation. 

“This is particularly important at a time when the Government is reviewing the role of the State through welfare and employment reforms that seek to clarify where support will be offered, and the extent to which that can be given."