On 21 March 2025, the Financial Conduct Authority (FCA) announced a comprehensive market study into the distribution of pure protection products to individual retail customers (MS24/1.2). This initiative aims to ensure that the market functions effectively and that consumers receive fair value and good outcomes from these products. The study puts commission arrangements, in particular, under the spotlight.

The products which will be of primary focus in the market study are:

  • Term assurance
  • Critical illness cover
  • Income protection insurance
  • Whole of life insurance

Rationale

In 2023, around £4.85 billion was paid out in claims on pure protection individual policies (according to data from the Association of British Insurers). While the FCA considers that there have been generally good outcomes (with over 95% of new consumer claims being paid out on some products e.g., term assurance) and few complaints from consumers, concerns persist in respect of intermediary commissions and how these impact customer outcomes and product value.

Objectives

The FCA’s objectives with this study are to assess whether:

  • The structure of commission encourages intermediaries to suggest switching policies where this may not be beneficial for consumers. The FCA has cited examples of unnecessary re-broking and of intermediaries buying customer details to then switch those customers and receive the associated commission.
  • Premiums are being raised by insurers to pay a higher commission to an intermediary. As these products are distributed primarily through intermediaries (often consisting of complex value-chains, involving multiple actors) with significant upfront commissions on policy sale, there are incentives for poor product governance compliance and new entrants whose quality is harder for insurers to assess. Restricted panels can also drive increases in commission (and therefore premium).
  • The products provide fair value, as concerns have been raised on total lifetime premiums for certain life insurance products (particularly guaranteed acceptance over-50s life insurance) which often exceed payouts by at least 50%. Fair value will be considered alongside other outcomes and cross-cutting obligations under the Consumer Duty e.g., the nature and complexity of products and consumer engagement at point of sale.
  • The market supports innovation and growth, as smaller insurers face the obstacle of restricted panels, preventing them from accessing the wider consumer market and potentially limiting customer choice.
  • Recent insurer exits have potentially weakened the competitive pressures on insurers offering pure protection products, including looking at the drivers behind such exits and the extent of any barriers to entry / expansion.
  • There is a protection gap preventing some individuals, such as those with medical conditions, from gaining access to cover or being subject to increased policy exclusions making it difficult to access appropriate cover at an affordable price.

Scope

The FCA will examine the size and structure of commissions, the incentives they create and the effectiveness of FCA rules and commissions scheme features (e.g., clawback or equalising commission across advisers) in mitigating incentives and conflicts of interest. The regulator will consider the effects for different types of intermediaries (e.g., advised and non-advised). In addition, the FCA will be seeking to understand the impact that commission arrangements may have on fair value outcomes for consumers.

For insurers, the study will focus on the design and distribution (both direct and intermediated sales) of products, including: (i) pricing; (ii) consumer benefits; (iii) intermediary commissions; and (iv) clawback arrangements.

For intermediaries, the FCA will examine the distribution of products, the total price paid by customers and commission structures, including fees / adviser charging and in-house remuneration.

Other market participants e.g., reinsurers, portals, product comparison platforms and lead generators are not the direct focus of this study, however, the FCA will examine the relevant activities of these participants to the extent they influence outcomes for consumers. In particular, high cessions in this market mean that reinsurers do influence product design and distribution, which can impact customer outcomes.

Next Steps

The FCA had invited stakeholder views on the proposed terms of reference, with feedback incorporated from over 50 insurers, intermediaries, trade associations, consumer bodies, and other relevant entities.

Publication of the finalised terms of reference marks the launch of the market study, which will include continued engagement with stakeholders and planned publication of specific analysis during the year, culminating in an interim report expected in Q4 2025.

This market study aims to review the distribution and effectiveness of pure protection products, with the ultimate goal of benefiting consumers by ensuring they receive fair value and support in making well-informed decisions. Outcomes from this study may materialise through new regulatory requirements and guidance, although the FCA notes that it will consider the potential benefits and costs to consumers and firms before amending the current regulatory framework and first explore whether any issues can be addressed through clarification of existing rules. The FCA is also considering whether there is effective competition in the market.