FCA scrutinises adviser commissions in new protection study

The FCA has launched a market study into the distribution of pure protection insurance products.

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 the market is working. While the FCA has seen indications of good outcomes for consumers and relatively few complaints, it has raised concerns that "commissions used to sell these products may affect the outcomes consumers receive and the products’ value or design".

The study will examine whether the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers and whether premiums are being raised by insurers to pay a higher commission to an intermediary.

The FCA will also examine whether products provide fair value and support 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. 

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."