The UK financial watchdog is to investigate whether insurance companies are ripping off “vulnerable” customers who take out policies designed to financially protect them and their families in case of serious illness or death.
The Financial Conduct Authority (FCA) intends to launch a market study into pure protection products, which are designed to help individuals and their families with their finances should a policyholder die or be unable to cover financial commitments, after becoming concerned about how such policies are being sold.
About £4bn was paid out in claims in 2022, according to the FCA.
The regulator said that the commission arrangements for the sale of some products, which are mainly sold through intermediaries such as mortgage brokers or independent financial advisers, may not be structured fairly.
The FCA said that it also had concerns over “poor value” for consumers, including the amount of total premiums paid over the lifetime of a policy “far exceeding” the maximum conceivable payout.
“Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable,” said Sheldon Mills, the executive director of consumers and competition at the FCA. “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.”
The FCA said the first step into evaluating the state of competitive practices in the pure protection sector was a market study to explore the consumer experience and understanding of the products they were buying.
The watchdog will also look at the “competitive constraints” on insurers and intermediaries with “potential conflicts of interest in the commission structure”.
The financial watchdog will focus primarily on the sale of four types of pure protection products: term assurance, critical illness cover, income protection insurance and whole of life insurance, including policies for over-50s that offer guaranteed acceptance.
“Consumers should be able to buy products which meet their needs and provide fair value,” Mills said.
