Financial Conduct Authority launches market study into pure protection insurance distribution and commission incentives

The Financial Conduct Authority has launched a market study to assess how well the distribution of pure protection insurance products to retail consumers is working, with a focus on whether commission structures and sales practices are delivering good outcomes and fair value. The FCA noted that around GBP 4.85bn was paid out in claims on individual policies in 2023, alongside indications of generally good outcomes and relatively few complaints, but raised concerns that commissions may influence product value, design and customer outcomes. The study will focus primarily on term assurance, critical illness cover, income protection insurance and whole of life insurance, and will examine whether commission structures encourage advisers to recommend switching that is not beneficial, whether insurers raise premiums to fund higher intermediary commission, whether products provide fair value, and whether the market supports innovation and growth. The FCA’s finalised terms of reference clarify that private medical insurance, funeral plans, and accident, sickness and unemployment products are out of scope, and that the work will also build a better understanding of barriers to innovation and investment, the protection gap, and access to cover for customers who fall outside typical “healthy life” definitions. The FCA expects to publish initial findings and any proposed next steps by the end of 2025.