Dan Martin, Lead Consultant at Simplify Consulting explores recent FCA Market Study for UK pure protection market and what we can come to expect come the end of the year.
Earlier this week the FCA published its interim update on protection market part 1 of 2, with the second part expected later in the year. In addition to this, they have indicated a release in November survey findings from customers who have switched policies or made claims. The findings will explore consumer perceptions, understanding, and engagement with protection products, including how they choose products and intermediaries.
Whilst MS24/1.3 is a market insights piece to capture providers, distributors, product structures and everything in between, it does begin to indicate potential areas the regulator is likely to focus on heading into 2026. Most notably, there is a clear intent in sign posting the following:
- Reasons behind protection gaps and the challenges faced by specific consumer cohorts, particularly those considered more vulnerable.
- The role of portals, lead generators, and straight‑through underwriters, as well as analysing the share of the value chain they typically represent
- The indirect role of reinsurers in shaping product design and its implications for consumers
- The use of panels
- The overall value offered by different products
- Commission models (including level of remuneration)
- The practice of rebroking policies
So what could this mean for the U.K protection industry and potential regulatory headwinds for all involved?
General market challenges to closing the protection gap
It’s generally well publicised across the industry narrative that the U.K. population is under insured when it comes to utilising protection[1]. As regulatory intervention goes, I’m not convinced exactly what the FCA is hoping for, but it wouldn’t surprise me if they intend on being a lot more explicit to firms in; product and promotional material to increase awareness, the benefits protection products bring over and above state provision, and greater transparency on ‘value for money’ .
Firms are already doing this so let’s see if the FCA has a white rabbit to change the market narrative and customer adoption rates(!)
Portals, lead generators, and straight‑through underwriters
The findings indicated are telling. Is the FCA likely to start snapping at the heels of the technology firms who operate in product comparison platforms (PCP), portals, lead generators and anything in between? I would argue yes with some noticeable reference to anti competition, unnecessarily complex integration that favours the larger providers and an eco-system limiting innovation.
“While STP offers benefits such as reduced costs and improved adviser and customer experience, some stakeholders have raised concerns that it can:
- weaken competition and choice for customers that have vulnerabilities and that are not as easy to process, and
- dampen innovation as insurers all have to use the same set of questions”
“Not all insurers appear on every portal or PCP. Participation depends on strategic partnerships, technical integration, market focus, and commercial arrangements.
“Some insurers may have exclusive agreements, while others may choose not to participate. However, many adviser networks require the use of specific portals.”
Role of reinsurers
For anyone who is close to the protection industry, the role of the reinsurer is vital to pricing and managing exposure to mortality and morbidity risk. For the larger players they may opt to reduce their reliance. However, for the niche end of market this is a fundamental prerequisite to business trading.
“Insurers and reinsurers would typically agree on the proportion of risk each will bear, and the insurer would set the policyholder premiums to reflect this risk. Reinsurers therefore have a degree of influence over manufacturing and distribution of pure protection products by insurers”.
Interesting reference to the manufacturing and distribution role. Could this see reinsurers caught under PROD4? Potentially. Or at least increased oversight in the manufacturing and distribution from a regulatory standpoint.
The use of panels
The use of single tie and multi tie arrangements is well embedded by firms. I am personally a fan of such arrangements in increasing market reach to customers. It provides the customer with very clear choice be that from a direct insurer on a single tie arrangement or where there is a panel, it’s clear who the customer has a choice of.
What is more telling though is the call out of whole of market arrangements – and the fact these aren’t entirely whole of market with some insurers not being included. Protection distribution arrangements, can at times be complex. One solution to this is simply greater transparency to opening up panel arrangements. With better use of technology and integration this could serve as a win for the industry.
Value offered by different products
Outside of the core contracts what is noticeable is the repeated reference by the FCA to the value added benefits used in Protection plans. Personally, these have become a greater part in increasing market attractiveness, and I would have liked to have seen greater credit given to this area. What will be interesting to see is if the FCA decides to investigate further how these are seen in the overall package to what the customer is paying from a value for money perspective.
Commission models
The commission models in place today are essential to remunerating the advisers who play such a vital role promoting and securing cover for customers, which ultimately benefits insurers. What’s telling is the comprehensive nature of breakdown given in the study.
A fairly comprehensive analysis provided in the study, in particular is the call out of loaded premiums:
“Distributors may legitimately seek to negotiate loaded premiums to cover additional costs incurred (in comparison to competitors) for the benefit of consumers. However, loaded premiums may also simply reflect market power held by an intermediary.”
Given the historical direction of what RDR intended to address for the investment and pension industry, be prepared to see a lot more scrutiny on the use of loaded premiums. I wouldn’t be surprised if these are removed indefinitely from the market.
Practice of rebroking
It’s common practice across the market for intermediaries to seek better terms, or cover given the sensitivities of pricing. Insurers will at times drive commercially attractive rates to increase market share, only to then increase premium levels (particularly on renewable contracts). Unlike the general insurance market, where annual rebroking is market norm, pure protection is seen as long term contracts. This is an area the FCA is right to turn a spotlight on. I would welcome greater risk warnings to ensure cover is not left short in these circumstances.
The FCA has been explicit in:
“However, a policyholder switching to a different provider or policy is also likely (though not certain) to be higher risk due to their greater age, meaning rebroking could sometimes lead to poor outcomes”
Closing thoughts
Overall, the FCA has reflected the protection industry reasonably well from a factual base. Here at Simplify, we continue to wait with bated breath the extent of the regulatory agenda they want to push heading into 2026. The role of technology continues to be in focus as an integral part to the industry, as does further innovation to drive greater competition. As ever, the devil will be in the detail when the final findings are published later this year.
[1] Be Different, Understanding the protection gap in the UK, April 2018
Dan Martin
Lead Consultant
