Commentary on FCA Plans to Look at Pure Protection Distribution

Pure protection products are designed to help individuals, and/or their dependents, with existing financial commitments or lifestyle adaptations if the policyholder dies or becomes incapacitated, injured or infirm. They include term assurance, critical illness cover, income protection insurance, and whole of life insurance including both underwritten whole of life insurance and guaranteed acceptance over 50s plans.

The FCA plans to look at the existing market rules, to see if they working for consumers. Here are some industry comments for you;

In response to the FCA’s launch of a market study into how well the distribution of pure protection insurance products is working for consumers, Tim Hogg, director at consumer group Fairer Finance, said:

“Pure protection markets could be working better for consumers. The design and size of some commission payments appear to be hurting – rather helping consumers. The FCA has started to do its homework in understanding commission payments, and is signalling that it will get under the skin of whether commissions should be restricted or reformed.

“Ultimately, many people aren’t buying life insurance when they would benefit from it. Communications about life insurance remain complex and off-putting. Purchase journeys can be lengthy and contain high levels of friction triggering negative emotional responses with the medical questions. It’s great that the FCA will look at how to facilitate more innovation in this market – from the design of communications and journeys, to the way that products work.”

BROADSTONE

David Gray, Senior Consultant Actuary at leading independent financial services consultancy Broadstone, commented: “Pure protection plays a critical role in our financial services ecosystem but it also delivers products that are implemented at times of extreme personal loss, distress and uncertainty in the case of death and serious illness or injury.

“It is really important that the protection sector is working well for consumers and that the selling of products like income protection and whole of life insurance is delivering fair value and comprehensive cover over a suitable term. While the FCA points to many current positive indicators and outcomes for consumers, it evidently has concerns around aspects such as commission arrangements and barriers to investment and innovation.

“We note the changes to the terms of reference after listening to stakeholders including ‘work to develop a better understanding of the magnitude of the protection gap and its underlying causes’. We believe that a wider take up of affordable protection policies can greatly increase Societies’ financial resilience.”

“The market study is in line with the regulator’s intense focus on value and fairness for the consumer. These objectives are crucial for building trust and ensuring that the system is working throughout the value chain.”