The Financial Conduct Authority (FCA) plans to launch a study into the products, including whether policyholders fully understand what they are buying.
It also aims to look at how commission on the sale of products is paid and whether there is any potential conflict of interest in the way such payments are structured.
The authority is concerned that the current way commission is paid to brokers who sell the product may not produce the best results for customers.
There are concerns that the products can be poor value – for example, in circumstances where the total amount of premiums paid during the course of a lifetime is significantly more than the maximum payout.
This is the latest in a series of investigations by the regulator – earlier this year, YourMoney.com reported on the FCA’s review of the continuing motor finance issue.
Wellness and wellbeing holidays: Travel insurance is essential for your peace of mind
Out of the pandemic lockdowns, there’s a greater emphasis on wellbeing and wellness, with
Sponsored by Post Office
Concerns about which protection products to choose
The so-called ‘pure’ protection products are designed to help individuals and their families with their finances should the person who bought the policy die or become unable to meet their financial commitments.
Around £4bn was paid out in claims in 2022, according to the FCA.
The authority aims to focus mainly on the sale of four specific types of protection product in its review.
These include term assurance, critical illness cover (CIC), income protection insurance and whole-of-life insurance, such as policies for over-50s that offer guaranteed acceptance.
Meeting customer needs
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable.
“Consumers should be able to buy products [that] meet their needs and provide fair value.
“We have seen indications that this may not be the case across the pure protection market and we will act if we find that the market is not working well.”
Rocio Concha, director of policy and advocacy at Which?, says “problems persist throughout the insurance sector” and the FCA’s decision to review its practices is a timely one.
“Which? has raised long-standing concerns about the sale of over-50s life insurance, which we’ve been clear most people would be better off without due to the poor value these products offer most consumers”, Concha said.
The consumer champion expert added: “Customers are often being treated poorly or ripped off by their insurer. Our investigations have found that nearly half of recent claimants suffered at least one problem during the claims process, and customers who can’t afford to pay for their annual premium in one go are forced by some insurers to pay eye-watering levels of monthly interest.
“The FCA must ensure that firms across the insurance industry are meeting the requirements set out in the Consumer Duty and not be afraid to take tough and meaningful action against those that fall short.”
This article is based on one that was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Protection insurance under the FCA’s spotlight
