FCA Launches Study into Pure Protection Insurance

By Sinead Cruise

LONDON (Reuters) – Britain’s Financial Conduct Authority (FCA) announced on Wednesday it will conduct a market study into pure protection insurance sales due to concerns that commission structures may negatively impact policyholders.

What Are Pure Protection Products?

Pure protection products are intended to assist individuals and families in managing finances when policyholders face financial challenges, typically due to illness or death.

Focus Areas of the Study

Set to launch in 2024/25, the study will primarily investigate the sale of four specific product types:
– Term assurance
– Critical illness cover
– Income protection insurance
– Certain whole of life insurance products with guaranteed acceptance for customers over 50.

FCA’s Consumer Duty Push

This study aligns with the FCA’s ongoing Consumer Duty efforts and is reminiscent of the payment protection insurance (PPI) mis-selling scandal that occurred between 1990 and 2010, costing banks approximately 40 billion pounds ($52.9 billion) in compensation.

Current Market Landscape

Pure protection insurance is often sold through intermediaries like independent financial advisers or mortgage brokers. The FCA reported that approximately 4 billion pounds was paid out in claims against these policies in 2022.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, stated, “Pure protection can offer peace of mind and financial security; consumers should be able to buy products that meet their needs and provide fair value.”

Areas of Exploration

The regulator aims to investigate consumers’ understanding of the products, competitive pressures on insurers and intermediaries, and potential conflicts of interest tied to commission structures.

($1 = 0.7563 pounds)