FCA to investigate insurance market amid concerns over vulnerable customers

The City’s main regulator is to investigate Britain’s insurance industry amid concerns that “vulnerable” customers are being ripped off when taking out critical illness cover or income protection insurance.
The Financial Conduct Authority will launch a market study into how “pure protection insurance products”, which also include term assurance and whole of life insurance, are sold.
The investigation comes after unhappy customers raised concerns that “competition is not working well in the market”. The FCA wants to look at any potential conflicts of interest in commission payments to brokers, as well as checking that customers understand what they are buying.
“Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable,” Sheldon Mills, executive director of consumers and competition at the FCA, said.
“Consumers should be able to buy products that meet their needs and provide fair value. We have seen indications that this may not be the case across the pure protection market and we will act if we find that the market is not working well.”
Pure protection insurance products are designed to help individuals and their families with their finances should the policyholder die or become unable to meet financial commitments.
For example, someone might take out income protection insurance to help them with their mortgage payments should they become unable to work through illness, accident or disability.
These policies are mainly sold through independent financial advisers or mortgage brokers, which earn commission from any sales. The FCA is conscious that the “design of commission arrangements may not allow firms to deliver good outcomes” to policyholders.
There are worries that some people might have taken out a policy they did not need or that was unsuitable.
The watchdog is also concerned that some products “may be providing poor value for money”. About £4 billion was paid out in pure protection claims in 2022, but some customers pay far more in premiums over a lifetime than they could ever conceivably expect to receive from a payout, the FCA said.
“It’s always been a push industry,” said Abid Hussain, an insurance industry analyst at Panmure Liberum, said. “I suspect [the FCA] are concerned that these products are getting pushed a bit too much relative to the value metrics for policyholders.”
Unlike the payment protection insurance (PPI) scandal, which cost banks about £40 billion in compensation, there has not yet been any suggestion of mis-selling of pure protection products. However, should the FCA find evidence of that in its study, “that could be a material issue”, Hussain added.
In the UK, Aviva, Legal & General, and Royal London are among the best-known providers of pure protection insurance.