FCA Market Study Pure Protection Insurance: Key Focus Areas for Insurers and Intermediaries?

You’d be forgiven for thinking that much of the FCA’s focus is currently on the insurance sector. Their recent concerns stemming from the thematic review on Product Governance in the General Insurance and Pure Protection sectors, along with a call for input on current rules in the commercial insurance market, highlight this focus.

To reinforce this, the FCA plans to launch a market study into how pure protection insurance products are sold, following concerns that competition may not be working effectively. The study is scheduled for later in 2024/25.

Key Concerns

The FCA has raised concerns that commission arrangements might not be allowing firms to deliver good outcomes to policyholders. Additionally, some products may be providing poor value.

Key Focus Areas

Insurers: The study will focus on the design and distribution of products (both direct and intermediated sales). This includes:

• Product pricing
• Consumer benefits
• Commission payments to intermediaries
• The impact of mitigants like clawback arrangements in managing conflicts of interest

Intermediaries: The FCA will examine the distribution of products, particularly where intermediaries influence:

• Product design
• Total price paid by customers
• Commission structures
• Fees/adviser charges and in-house remuneration

Product Types: The study will focus on four key product types purchased by individuals:

• Term assurance
• Critical illness cover
• Income protection insurance
• Whole of life insurance

Group policies in workplace settings will not be the focus.

Competition: The FCA will assess competition in the market, particularly following the exit of several providers.

Consumer Considerations

The FCA will explore consumer needs, focusing on product complexity and how clearly they are presented. Firms’ conduct and the incentives offered to staff will also be under review.

Given the recent GAP insurance turmoil, commission arrangements will be closely scrutinized, including:

• The size and structure of commissions
• Incentives they create
• Clawback mechanisms to mitigate conflicts of interest

What Firms Need to Consider

Although the FCA is not formally consulting on this matter, they welcome views on the study’s scope. Responses can be sent to PureProtectionMS@fca.org.uk by 11 October 2024.

Firms should already be conducting product reviews on pure protection products in light of this study and the recent FCA Thematic Review. Now is an ideal time to revisit these reviews and ensure Senior Management is confident that products:

• Deliver good outcomes for customers
• Address and manage conflicts of interest effectively

How We Can Help

If you’d like to get ahead of the FCA’s upcoming review, we are here to help. We offer:

• Independent product reviews
• Guidance on your product governance processes
• Review of your commission arrangements to ensure they support good customer outcomes.

Contact us to discuss how we can help you prepare.