The United Kingdom’s Financial Watchdog will be conducting an investigation to assess whether insurance companies are exploiting consumers who purchase policies meant to offer financial protection in case of a major illness or death.
Due to concerns about the sales practices of such policies, the Financial Conduct Authority (FCA) intends to launch a market study on pure protection products. These products are designed to provide support to individuals and their families in managing their financial affairs in case of the policyholder’s death or inability to fulfil their financial responsibilities.
In 2022, the Financial Conduct Authority (FCA) settled claims totalling approximately four billion pounds.
The regulatory body stated that the commission arrangements for the sale of certain products, primarily offered through intermediaries like mortgage brokers or independent financial advisers, were deemed unfair in their structure.
In relation to its concerns about “poor value” for customers, the Financial Conduct Authority (FCA) expressed worry regarding the overall premiums paid throughout the duration of a policy, which could potentially surpass the maximum payout.
“Pure protection can provide a sense of calm and financial stability, especially during times of vulnerability,” expressed Sheldon Mills, the executive director of consumers and competition at the Financial Conduct Authority (FCA). There are indications that imply this may not be true for the entire pure protection market, and we will intervene if we find that the market is not performing optimally.
Conducting a market study to investigate the consumer experience and comprehension of the products they are purchasing is the first step in analysing the current condition of competitive practices in the pure protection sector, according to the Financial Conduct Authority (FCA).
Furthermore, the regulatory body will examine the “competitive constraints” faced by intermediaries and insurers with potential conflicts of interest in their commission structure.
The financial watchdog is expected to prioritise the marketing of four distinct types of pure protection products. These insurance options encompass term assurance, critical sickness cover, income protection insurance, and whole life insurance. The latter offers plans specifically designed for individuals over the age of 50, ensuring guaranteed acceptance.
“Consumers deserve the opportunity to buy products that meet their needs and are reasonably priced,” Mills stated.