Protection market delivers good outcomes but coverage gap remains, FCA finds
James Shattock said: "More needs to be done to close the UK’s protection gap and help people better understand the role protection can play in building financial resilience."
The Financial Conduct Authority (FCA) has released its final Pure Protection Market Study, which found that the market generally delivered good outcomes for people with cover.
Consumers had access to a wide range of products and distributors, while claims acceptance was high and complaints were low.
However, it noted that people with complex needs faced barriers including lengthy underwriting, delays in obtaining medical evidence and difficult application processes.
The FCA said firms could improve communication and transparency, including regular policy information and clearer details about claims.
It also stated that firms should consider the risk of economic abuse when recommending single or joint policies.
It said firms should explain these services clearly and avoid giving them too much prominence over the main protection policy.
Stakeholders agreed the protection gap was driven by low consumer engagement, a lack of timely prompts and problems accessing cover.
Renters, lower-income households, self-employed people, gig economy workers and those with existing medical conditions were among the groups most affected.
Stakeholders supported prompts encouraging people to consider protection when buying or renting a home, having a child, separating from a partner or changing employment.
However, they said education and awareness campaigns alone were unlikely to increase take-up unless process delays and consumer inertia were also addressed.
Views were mixed on extending targeted support to protection.
Insurers were generally supportive, while trade bodies and intermediaries warned that poorly designed support could lead to unsuitable or incomplete cover.
Respondents also opposed compulsory protection, noting that it could create problems for people with existing medical conditions, encourage decisions based mainly on price and reduce trust in advice.
Reaction:
James Daley, managing director of Fairer Finance:
“The Pure Protection Market study is a missed opportunity.
“The regulator has acknowledged many of the problems in the market – from loaded premiums to poor value offered by over 50s plans – but then concludes that no market wide action is necessary.
“While it’s great that the regulator is looking at ways to close the protection gap, and grow the market, it has missed an opportunity to iron out some of the wrinkles that have been delivering poor customer outcomes.”
Daley added: “Market studies tend to be a once in a generation event – and the question begs why this exercise was carried out at all if it was going to conclude with no real action.”
James Shattock, managing director of protection and retail retirement at L&G:
“We welcome the FCA’s final report and its recognition that the protection market is delivering good outcomes for many customers.
“However, the findings rightly highlight that more needs to be done to close the UK’s protection gap and help people better understand the role protection can play in building financial resilience.
“We look forward to continuing to work with regulators, advisers and industry partners to improve access to protection and ensure more people can benefit from the financial security it provides.”
Ewen Tweedie, actuarial director at Broadstone:
“The FCA has correctly identified that the greatest weakness in the pure protection market is not necessarily the products themselves, or even the price of the products, but the fact that millions of people never consider whether they need cover.
“This indicates a shift from a conduct viewpoint focused on value, to a growth viewpoint focused on engagement.
“Prompts at key life events and greater adviser engagement are sensible steps.
“The decision not to extend targeted support is understandable, as it would largely help consumers who are already engaged, but the scale of the gap means policymakers may ultimately need to go further than voluntary awareness initiatives.
“This presents an opportunity for insurers to consider how they are not just taking their products to market, but how they are promoting the importance of protection for all.
“The workplace could provide an effective route to wider coverage.
“Auto-enrolment has shown how employment can help overcome inertia, and there is a strong case for government, employers and providers to explore how simple protection products could be incorporated more consistently into workplace benefits.
“Providing new employees with protection prompts and information could be a simple way to increase awareness and engagement.
“More consistent claims statistics would also help advisers compare providers on a level playing field and strengthen consumer confidence in the value of protection insurance.
“The protection market isn’t broken, but participants through the value chain should consider how they can work together to increase engagement and make protection more accessible for all.”
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