UK's FCA to probe pure protection insurance market

28th Aug 2024 08:53

(Sharecast News) - Britain's financial watchdog has started a probe into so-called "pure protection" insurance policies over concerns that companies may be ripping off vulnerable customers.

The Financial Conduct Authority (FCA) said it would launch a market study into products designed to help people and their families with their finances should a policyholder die or be unable to cover financial commitments.

Its investigation will focus mainly on four types of pure protection products: term assurance, critical illness cover, income protection and whole of life insurance, including policies for over-50s that offer guaranteed acceptance.

About £4bn was paid out in claims in 2022, according to the FCA, adding that commission arrangements on some products - mainly sold through intermediaries such as mortgage brokers or independent financial advisers - may not be structured fairly.

There were also concerns that some products may be providing "poor value" with 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."

"In order to understand how the market is working the FCA will explore consumers' engagement with and understanding of the products they are buying, the competitive constraints on insurers and intermediaries, and potential conflicts of interest in the structure of commission," the watchdog said.

Reporting by Frank Prenesti for Sharecast.com