The FCA has published its final report in relation to its Pure Protection Market Study; MS24/1.5. It has also published findings on switching, claims experiences, and fair value in the protection market.
Generally, the FCA found that competition works well in the market, but it has reminded firms of requirements and good practice under the Consumer Duty and its product governance rules. It is not planning new market-wide measures, but will act where firms fall short of requirements and is setting out action to close the protection gap and support consumers.
- The FCA launched this market study in March 2025 to assess whether competition in the distribution of pure protection products – such as life insurance, critical illness cover and income protection – works well for consumers.
- The FCA has found that competition generally delivers good outcomes for people who hold these products, with a wide range of products available and high claims acceptance rates.
- 58% of people don’t hold any protection products, and 59% of those have never considered their protection needs. The FCA is concerned where this ‘protection gap’ results from limited consumer awareness and understanding, or from challenges in the sales process making access difficult.
- Subject to sufficient interest, the FCA plans to run a TechSprint in Q3 2027 to explore technology-enabled solutions to close the protection gap. A TechSprint brings together firms and stakeholders to develop technology-based solutions to a defined market challenge. Expressions of interest are invited by 13th November 2026, and the FCA will confirm by the end of 2026 whether the TechSprint will proceed. Further details are in Chapter 3 of the Final Report. Please submit expressions of interest to: PureProtectionMS@fca.org.uk.
Tackling the protection gap
- Those most affected are consumers with more complex needs, less stable incomes, lower financial resilience or fewer opportunities to engage with protection products through established distribution channels. This includes consumers with pre‑existing or complex medical conditions, renters, lower‑income households and people in self‑employment or gig economy work.
- On the demand (consumer) side, there is low awareness and limited understanding of these products. Some consumers do not recognise when protection is relevant to their circumstances or do not engage sufficiently with the potential financial consequences of death, serious illness or incapacity.
- To encourage consumers to consider their protection needs more actively, we will work with partners so they can introduce or improve:
- protection prompts at key life events, such as purchasing a property and planning for future savings and financial needs;
- nudges for consumers to use tools such as trusts and beneficiary nominations; and
- consumer awareness initiatives and strengthened adviser engagement.
- On the supply (firms) side, whilst competition has driven improvements over time, there are aspects which can cause issues:
- A long and complicated sales process can lead consumers to abandon it.
- Underwriting can be lengthy or complex, medical evidence takes time to obtain, product communications can be unclear, or products may not be available for consumers with more complex needs.
- Some firms told the FCA that they are not always clear whether regulatory requirements allow them to innovate in product design, distribution and consumer journeys.
- To improve access, the FCA will encourage innovations to address complex underwriting and product design, including by running a TechSprint. The FCA will also support initiatives to tackle delays in obtaining medical evidence. In parallel, it will run a myth‑busting webinar for firms to address any regulatory uncertainties.
A wider consideration is whether this should realistically be the remit of the FCA alone, or whether this is more a societal issue in the way we financially educate our young people, and/or the economic choices made by successive governments which affect the lives of consumers.
Improving price and quality outcomes
- The FCA found a handful of smaller issues, limited in scale and not systemic, but where targeted action could prevent harm or deteriorating outcomes.
- These include some instances where intermediaries may be incentivised to switch consumers unnecessarily and ongoing industry requests for clarity on how premiums can be adjusted for commission.
- The FCA wants the market to deliver consistently strong price and quality outcomes as this will also support greater consumer trust and take up of protection products. The FCA reminds firms of the requirements under the Consumer Duty (the Duty) and the Product Intervention and Product Governance Sourcebook 4 (PROD 4).
- Having reviewed firms’ fair value assessments, the FCA has set out positive examples and areas for improvement. There is scope for firms to strengthen the evidence underpinning their assessments of target market value and the impact of remuneration and distribution arrangements on consumer outcomes and fair value.
Fair value assessments – positive examples and areas for improvement
Positive examples
- Some firms demonstrated a clear understanding of the relationship between total price paid by customers and the quality of the product and services provided. These firms used a combination of qualitative and quantitative information to assess fair value, including analysis across customer cohorts, distribution channels and pricing variations.
- These firms assessed whether commissions, premium loading and other fees within the distribution chain were consistent with providing fair value and did not adversely affect the product’s intended value.
- Some firms analysed the total price, individual price components (including metrics related to distribution) and/or other measures of value for different customer cohorts, such as those based on product, personal characteristics and distribution channels.
- The FCA saw examples of firms analysing outcomes by distribution arrangement, individual distributor or comparing different remuneration structures to determine whether they were associated with differences in customer outcomes or service. Where value metrics appeared weaker, firms undertook further investigation to understand the drivers of those outcomes.
- Some manufacturers assessed whether distribution arrangements supported the intended value of the product by evaluating remuneration across different distributors and channels, and identifying where particular arrangements or distributors had weaker value metrics and what caused these.
- In some cases, firms had governance processes in place to evaluate the impact of changes to remuneration on value, with additional approval requirements for non‑standard arrangements (e.g., cancellation and lapse rates alongside information about distributors’ business models, sales processes, business quality and customer outcomes to assess whether additional remuneration was justified by better service).
- Some firms also monitored the level and number of non‑standard arrangements in their distribution mix.
- The FCA noted examples of firms taking action where distribution arrangements adversely affected the value provided to customers, such as adjusting premiums, reviewing remuneration structures or terminating relationships with distributors where the value delivered did not justify remuneration.
- Some distributors used a combination of quantitative metrics and qualitative information to evidence that the commissions received were aligned with the cost of distribution and level of service. This included demonstrating how remuneration reflected the nature, extent and value of their services.
- One distributor analysed remuneration and distribution costs by marketing channel and insurer, explaining how different channel costs supported differences in commission.
- Distributors sought to show that enhanced commissions were justified by additional services or improved customer outcomes. In these cases, firms were able to show how higher remuneration related to measurable differences in service quality or customer experience. For example, one firm used measures including cancellations shortly after sale and the proportion of policies placed in trust to support its assessment of service quality.
- A number of good practices were noted in relation to ‘Guaranteed acceptance over 50s’ cover.
Areas for improvement
- The FCA identified instances where firms could provide greater clarity on how they assessed whether the expected total price paid by the customer, including remuneration and other distribution costs, was reasonable relative to the quality of the product and services provided, and therefore consistent with the product delivering fair value. For example, some firms could strengthen the rationale provided for any thresholds or tolerance limits applied to customer value metrics.
- There are opportunities for firms to strengthen how they evidence the impact of remuneration and other distribution costs in their fair value assessments. In some cases, although firms considered the reasons for non‑standard arrangements, they could give more clarity on how they considered commissions, premium loading and additional distributor fees in relation to the total price paid by customers and the product’s intended value.
- The FCA identified instances where distributors could be clearer about the relationship between remuneration and the services they provide. Some gave high‑level descriptions of their distribution services, with limited evidence of how remuneration related to the costs incurred or the nature, extent and benefits of the services they provided.
- Some distributors could better assess and evidence the appropriateness of commission levels in the context of the services provided. In some cases, firms could provide greater clarity on how they considered specific remuneration structures or distribution arrangements as part of their assessment of customer outcomes and fair value.
- Three areas for improvement were noted in relation to ‘Guaranteed acceptance over 50s’ cover.
Firms should review the examples and findings in the report and consider whether they need to improve how they deliver, and evidence, good outcomes for consumers.