Background

On 29 January 2026, the FCA published its interim findings (MS24/1.4) on its market study into the distribution of pure protection products to individual retail customers (the Interim Report). The Interim Report focuses on issues identified across the following areas in respect of critical illness, term assurance, whole of life insurance and income protection:

  • Consumer outcomes
  • Pricing outcomes, value and firm profitability
  • Protection gap and innovation
  • Intermediaries and commission

The FCA’s initial findings indicate that the distribution of pure protection provides good outcomes to consumers overall, but that certain areas of the market could benefit from improvement.

Key findings

The FCA’s key findings include that:

  • The pure protection market generally offers good consumer outcomes and that most claims ratios are over 50%. The FCA found thata wide range of products are available, claims acceptance rates are high and complaints are low as compared against other insurance products and the number of in-force policies. Whilst most products were found to have claims ratios above 50 per cent, income protection was found to have a lower ratio at 40 per cent.
  • Insurers earn only modest margins and there is wide premium dispersion, The insurer profit margins suggest that there is a degree of competition in the market. Dispersion is most likely a consequence of factors such as policy add-ons, different term lengths and customisable pricing more generally. However, the FCA also stated that a broad premium dispersion can indicate a certain level of price discrimination but that the FCA could not assess this based on available data.
  • Intermediary firms may be promoting new policies to customers to obtain repeat commission (also known as “switching”) at the end of clawback periods. Insurers are aware of this issue and based on current levels and its review of the data the FCA considers that the resulting consumer harm is unlikely to be significant in the market. However, the FCA considers that these practices do not help to address the protection gap. The Interim Report also cites evidence that certain intermediaries engage in poor practices through seeking to cover clawback payments through commissions earned on the sale of new policies, leading to potentially poorer quality sales, further increased clawbacks and ultimately write-offs by the insurer of the intermediary commission clawback debt. This activity is not currently at material levels but should be closely monitored.
  • There is evidence of a ‘protection gap’, being the gap between the potential needs for pure protection coverage and the actual amount of coverage held. While measuring the protection gap is inherently difficult, the FCA consider that  there is a gap and that a likely key cause is a lack of both consumer awareness of the need for pure protection coverage and of prompts to consider the need for coverage, as well as affordability and access issues, particularly for those consumers with pre-existing medical conditions.
  • There are signs of entry into and innovation in the market but scope for consumer-focused innovation. Innovation in recent years includes AI-driven underwriting to improve accuracy and increase efficiency, value-added health services, comparison platforms and hybrid digital-advised distribution models. However, brand loyalty, upfront commission and product development costs make it difficult for new or smaller insurance businesses to compete. Firms suggested that future innovation should centre on improving ongoing communications and claims assistance as part of the post-sale consumer experience, simplifying policy wording to address risk of complexity for consumers and increasing the focus on products that can benefit consumers with pre-existing medical conditions.

Potential remedies

The Interim Report sets out potential remedies to address the issues identified, primarily focusing on efforts to reduce the protection gap. However, substantial market-wide interventions are not expected at this time, with the FCA preferring to assess whether current regulatory frameworks and rules can facilitate the required improvements. To address the protection gap, the FCA is considering work to help increase consumer knowledge of pure protection by way of triggers or prompts, as well as promoting targeted support for pure protection products to consumers who are less likely to be able to access standard products.

The FCA also proposes to tackle the incentives for intermediaries to encourage consumers to switch to new policies. This is proposed to be by way of clarification of existing rules or to consider new rules or guidance. However, the FCA does not currently propose to introduce interventionist remedial work at this stage. The FCA considers that increased data collection, monitoring and reporting will help to reduce poor selling practices, including in relation to customer switching.

Next steps

The FCA seeks to obtain feedback on its proposed solutions to the issues identified in the Interim Report and to work with stakeholders to reduce the protection gap. The FCA has requested comments by 31 March 2026 and intends to publish its final report in Q3 of this year.