On August 28 the Financial Conduct Authority published their terms of reference (TOR) (MS24/1.1), explaining the rationale for the market study into distribution of pure protection products to retail customers, its intended scope and the areas they plan to explore.
They made it clear that they were not formally consulting on the TOR but would welcome views on the scope and issues being explored by October 11 2024.
Market participants can suggest any other products, activities or themes that could be considered to help understand whether competition in pure protection is working in the interests of consumers.
With workplace group policies specifically excluded, the only other product areas that Protection Distributors Group members would suggest are business protection sales and individual private medical insurance.
In its press release the FCA stated that it intends to “launch the market study into how pure protection insurance products are sold following concerns that competition is not working well in the market.”
Later in the press release Sheldon Mills, executive director of consumers and competition at the FCA, 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.”
It is extremely positive that the market study is starting “with an open mind as to whether we find evidence of harm” and is not currently defining a start date, only an intention to launch the market study in the financial year 2024-25.
This gives ample opportunity for all relevant parties to comment accordingly. We would, however, note that while the review is ongoing, all who would invest in our market face great uncertainty. We would therefore urge the FCA to keep this process as short as is fair and practicable.
A welcome step
This “deep dive into the protection market” is the first time, to our knowledge, that any of the various UK financial regulators we have had since 1986 has done this.
We welcome the fact that the FCA is looking at protection specifically and not lumping it in with general insurance.
The FCA is very clear that this is in relation to retail consumers, where pure protection products are designed to help an individual and/or their dependents with existing financial commitments or lifestyle adaptions if the policyholder dies or becomes incapacitated, injured or infirm.
These products include term assurance, critical illness cover, income protection insurance, and whole-of-life insurance, including guaranteed acceptance over-50s plans.
In my view the introduction reinforces the core reason the products are designed, the value they have in providing financial resilience to consumers and the sheer volume of protection claims paid out in the UK market.
In September, the Association of British Insurers and Group Risk Development has shown that group and individual protection policies paid out a record £7.34bn in 2023.
