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The financial watchdog is to review the UK’s pure protection insurance market, amid concerns that competition in the sector is “not working well”.
The Financial Conduct Authority (FCA) said it will launch a market study into the insurance products later this fiscal year.
Pure protection products, which can include critical illness cover and income protection insurance, are designed to help individuals and families with finances should the policyholder die or become unable to meet financial obligations.
The regulator said it has “concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders”.
It also raised concerns that some products would be providing poor value, for example, if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
Around £4 billion was paid out in pure protection insurance claims in 2022, according to the FCA.
The products are mainly sold through intermediaries such as independent financial advisers or mortgage brokers
The regulator said the study will focus on four types of insurance products: term assurance, critical illness cover, income protection insurance and whole of life insurance, including policies for over-50s that offer guaranteed acceptance.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable.
“Consumers should be able to buy products which 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.
“The FCA is keen to hear any feedback on its terms of reference and, ahead of launching the market study, will engage with firms, industry groups and others to gather views on the market and the issues we propose to examine.”
