The Financial Conduct Authority (FCA) has announced its intention to launch a market study into how protection insurance products are sold due to concerns that competition is not working well in the market.

Pure protection products are mainly sold through intermediaries, such as independent financial advisers, and aim to help individuals and their families with their finances if the policyholder dies or is unable to meet financial commitments.

The study will be launched later in the 2024/25 financial year.

The FCA said it was concerned that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.

It also raised concerns that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum possible payout.

To help it understand how the market is working, the FCA will explore consumers’ engagement with and understanding of the products they are purchasing, the competitive constraints on insurers and intermediaries, and the potential conflicts of interest in commission structures.

The watchdog’s focus will primarily be on the sale of four types of products: Term assurance, critical illness cover, income protection insurance, and whole of life insurance.

“Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable,” stated FCA executive director of consumers and competition, Sheldon Mills.

“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.”

Broadstone head of life and health, Cara Spinks, added: “The FCA is delivering a firm message to the financial services industry with yet another probe into whether a segment of the market is delivering good outcomes to members.

“This investigation into the distribution of protection products is focused on commission arrangements, fair value for consumers and competition in the market. These products provide vital cover for policyholders in the case of death and serious illness or injury, delivering protection at a vulnerable or stressful period in people’s lives.

“Ensuring the market is providing a fair and competitive service to policyholders is central to the regulator’s Consumer Duty objectives.”

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