FCA to scrutinise whether pure protection market provides fair value to consumers

The FCA has launched a market study into how well the distribution of pure protection insurance products – which support families with financial commitments if someone becomes critically ill or dies – is working for consumers.  

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

The review will explore how effectively this important market is working. While the FCA has 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.

The FCA committed to looking into the sector in further detail in August last year, but prior to launching, took feedback from the market on the terms of reference.

The study will examine whether:  

• the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers  
• premiums are being raised by insurers to pay a higher commission to an intermediary
• the products provide fair value
• the market supports innovation and growth

The market study will focus primarily on the sale of four products – term assurance, critical illness cover, income protection insurance and whole of life insurance. It will allow the FCA to carry out a more detailed analysis in these areas using its competition powers and the launch does not presuppose any particular outcome. 

Initial findings 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.' 

Notes to editors

1. Read the Terms of Reference (PDF).
2. The FCA published the draft terms of reference in August 2024 for a market study into the distribution of pure protection products to retail consumers.
3. Changes the FCA has made to the terms of reference after listening to stakeholders include:
   • further clarification on the scope of the market study, including that private medical insurance is out of scope, as well as funeral plans and accident, sickness, and unemployment products
   • being clear that we will develop a better understanding of:
     • barriers to innovation and investment
     • the ‘protection gap' – the extent to which customers, who would benefit from cover, are not adequately covered, and
     • ‘access to cover'- access for those customers that fall outside a typical definition of a 'healthy life', such as those with existing medical conditions
4. Term assurance: a policy which pays a lump sum to beneficiaries if the policyholder dies within a specified period.  
5. Critical illness cover: a policy which pays a lump sum to the policyholder if they are diagnosed with a prescribed (non-fatal) serious illness or medical condition.  
6. Income protection insurance: a policy which replaces part of a policyholder's regular income if they become unable to work because of illness, accident, or disability.  
7. Whole of life insurance, including guaranteed acceptance over 50s life insurance plans: these policies provide cover for the policyholder's lifetime, paying out a lump sum to beneficiaries on the policyholder's death. Guaranteed acceptance is a type of whole of life insurance which doesn't require medical or health information for an individual to qualify for cover.
8. One of the FCA's primary operational objectives is to promote effective competition in the interests of consumers. Further information about our competition objective and our market study process can be found here.