The Financial Conduct Authority (FCA) has launched a market study into the distribution of pure protection insurance products to retail consumers. The aim is to evaluate whether the market operates effectively and delivers fair outcomes for consumers.
You can read the full report HERE
Scope of the Study
The FCA’s review will focus on four core product areas:
- Term Assurance
- Critical Illness Cover
- Income Protection
- Whole of Life Insurance, including guaranteed acceptance plans for individuals over 50
Key Areas of Concern
The FCA has identified several concerns prompting this study:
- Commission Structures: Concerns that commission arrangements may incentivise intermediaries to recommend products that do not represent fair value to consumers.
- Product Value: Cases where total premiums paid significantly exceed potential payouts, raising concerns about the true value of the product.
- Market Competition: A reduction in the number of insurers in the market may have diminished competition, impacting consumer choice, pricing, and product quality.
- Consumer Understanding: The FCA is examining how well consumers understand the products they purchase and whether they are making well-informed decisions.
Consumer Duty
The introduction of Consumer Duty has placed increased emphasis on the fair and appropriate sale of protection products. Advisers must ensure that products provide fair value and genuinely meet customer needs.
One specific area of concern raised by the FCA is the sale of products on a commission basis, particularly where this incentivises recommendations that do not align with the customer’s best interests. The FCA has cited examples where clients have been encouraged to switch products unnecessarily—often to ones that offer reduced value or suitability.
Ensuring Your Advice Is in the Customer’s Best Interest
Connect offers access to a broad panel of providers, enabling advisers to recommend products that meet customer needs and deliver good value. To safeguard both the customer and the adviser, it’s essential to ensure your recommendations are well-documented and justifiable. If advising a customer to switch products, consider the following:
- Record Your Calls: If a complaint arises, Connect must be able to evidence what was discussed. Unrecorded calls may limit our ability to defend your advice.
- Evidence Policy Reviews: Ideally, upload the customer’s existing policy documents. Alternatively, provide a detailed summary of their current cover—outlining what is included or excluded—and ensure this is reflected in both the fact find and the suitability letter.
- Use Comparative Tools: Utilise systems that compare existing and proposed policies. This helps demonstrate that the new recommendation offers a tangible benefit—not just in terms of cost, but in overall suitability and value.
Final Thoughts
The sale of protection products remains a vital part of the advice process. Ensuring customers are fully protected is a key component of meeting Consumer Duty obligations. We are committed to supporting our Network in delivering advice that serves the best interests of clients—and can be clearly evidenced should any issues arise in the future.
If you have any questions, please do not hesitate to contact the Compliance Team. We are here to help.
Regards
Alan Baldwin
Director of Compliance & Operations
For any questions or queries, contact the Compliance Team
Call : 01708 676110