The Financial Conduct Authority plans to launch a market study into how protection products are sold as well as the use of commission arrangements.
The FCA has “concerns” that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.
The regulator is also concerned that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
Therefore, in order to understand how the market is working, the FCA will explore consumers’ engagement with, and understanding of, the products they are buying.
It also intends to examine the competitive constraints on insurers and intermediaries, and potential conflict of interest in the structure of commission.
To achieve this, the authority 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.
FCA executive director of consumers and competition, Sheldon Mills, 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 any issues.
The launch of the study follows recent concerns that competition is not working well in the market, which was raised in the FCA’s recent review into insurance and protection.
This review found many product manufacturers did not appear to have implemented effective product governance frameworks, meaning they were unable to adequately evidence how and why they believed their products offered fair value.
tom.dunstan@ft.com
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