Proof advice and products do not hinder protection; it’s awareness – reaction
The Financial Conduct Authority’s (FCA’s) decision to work with the sector instead of use enforcement is evidence the protection market is not “broken”, industry figures have said.
The regulator published its final report on its Pure Protection Market Study, once again stating it would not use its powers to intervene in the way protection is advised or designed.
Instead, it will team up with providers and organisations use the framework already in place to review underwriting practices, product innovation and help advisers engage with consumers to raise awareness.
The protection market is not broken
James Shattock, managing director of protection and retail retirement at Legal & General (L&G), welcomed the report and its recognition that the market was delivering good outcomes, but said it was right that the regulator highlighted the need for more to be done to close the protection gap.
Ewen Tweedie, actuarial director at Broadstone, said the FCA “correctly identified” that the greatest weakness in the pure protection market was that “millions of people never consider whether they need cover”, pointing to findings that nearly two-thirds of people never thought about protection.
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“This indicates a shift from a conduct viewpoint focused on value, to a growth viewpoint focused on engagement,” Tweedie said.
He continued: “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.”
Tweedie added that it was “sensible” to prompt customers during key life events and drive adviser engagement, and said the FCA’s decision not to extend targeted support was “understandable”, as it would likely help people who were already engaged.
Debbie Kennedy, chief executive of LifeSearch, said the final report showed that the FCA “looked hard at this market and backed it”, adding that it was a “vote of confidence in the protection market and a green light for growth”.
Kennedy added: “What matters now is what we do with that confidence. We have a regulator focused on growth, with pragmatic Consumer Duty guard rails in place, and a shared recognition that the biggest challenge is closing the protection gap.”
Putting in the work
Chris Reed, growth director at Protect Line, said the findings gave the sector a “strong foundation to build on”, adding that the FCA’s assessment was “broadly positive”.
Reed added: “We should measure whether we are reaching people who had never considered their needs, whether they understand their options, and whether those who take out cover can sustain it. We also need to understand where affordability or product availability leaves people without a workable option.
“Those findings would help us direct investment where it makes the greatest difference. The commercial opportunity is substantial: helping more households make informed decisions about their financial resilience, and building lasting confidence in protection.”
Rob Clifford, chief executive of Stonebridge, said this was the “most important regulatory review of the protection market for years”, finding that the industry worked well but not enough people were benefitting from it.
He added: “What the regulator confirms is what we believed was clear. There are no findings of consumer harm or misselling, as the advice sector is delivering good outcomes.”
Clifford added that the collaborative approach represented a “step change” in improving the market and mortgage networks had a “huge role to play”, adding that Stonebridge would continue investing in soft skills and technology to help advisers close the protection gap.
He added: “Then there’s the ‘beneficiary gap’ that results from policies not being written into trust to avoid payouts getting stuck in probate with the rest of someone’s estate. We’ve been improving advisers’ awareness and use of trusts in protection for years and we’re delighted this has received special attention in the report.
“While not suitable in all cases, trusts can rescue families from impossible financial situations when it matters most.”
The FCA’s oversight?
James Daley, managing director of Fairer Finance, disagreed with his peers, saying the FCA’s report was a “missed opportunity” to do more.
He added: “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. 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.”
