FCA issues update on probe into second insurance market

The FCA has launched a market study into how well the distribution of pure protection insurance products is working for consumers.

Pure protection products are designed to help individuals and their families with their finances should the policyholder die or become unable to meet financial commitments.

In August 2024, the FCA said it would investigate this market due to having concerns that competition is not working well.

Its market study, launched today (21 March 2025), will focus primarily on the sale of four products – term assurance, critical illness cover, income protection insurance and whole of life insurance.

The FCA will examine whether premiums are being raised by insurers to pay a higher commission to an intermediary and if the products provide fair value.

Commission concerns

This comes after around £4.85bn was paid out in 2023 in claims on individual policies to support people suffering from bereavement, illness and injury.

The FCA said that while it had seen indications of good outcomes for consumers and relatively few complaints, “there are concerns that commissions used to sell these products may affect the outcomes consumers receive and the products’ value or design”.

Initial findings from the study and any proposed next steps will be published by the end of 2025.

Sarah Pritchard, executive director of supervision, policy, competition and international at the FCA, said: “Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness, or injury.

“We are determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements.

“In launching the study today, we will be able to take a closer look before considering next steps. We will keep stakeholders regularly updated and welcome the feedback to date that will help us plan the scope of this review.”

Gap

This comes after the FCA investigated the guaranteed asset protection (Gap) market after feeling that it was failing to provide fair value to some consumers.

It led to the regulator announcing that 80% of the Gap market would be suspending sales in February 2024.

Several firms have now been allowed to recommence their sales of Gap products.