A new market study by the Financial Conduct Authority (FCA) will examine how pure protection insurance products are sold.
It follows concerns that competition in this sector is not working effectively.
Pure protection products are designed to help customers and their families with their finances should the policyholder die or become unable to meet their financial commitments. They are mainly sold through intermediaries such as independent financial advisers or mortgage brokers.
Around £4bn was paid out in claims in 2022.
The FCA is concerned that some commission arrangements may lead to poor outcomes to policyholders. It also believes that some products may not be providing good value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
As part of its study the regulator will look at consumers’ engagement with and understanding of the products they are buying, the competitive constraints on insurers and intermediaries, and potential conflicts of interest in the structure of commission.
The FCA will focus primarily on the sale of four specific types of products: term assurance, critical illness cover, income protection insurance, and whole of life insurance including policies for over 50s that offer guaranteed acceptance.
“Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable,” said Sheldon Mills, executive director of Consumers and Competition at the FCA. “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.”
