FCA Pure Protection Market Study: Fair value findings - what firms need to do

The FCA reviewed firms' fair value assessments specifically to understand how firms are meeting their obligations, publishing positive examples and areas for improvement to help the market raise its standards.  Firms should carefully consider the examples set out in the FCA's publication, assess how their current practices align with the intended consumer outcomes under PROD 4, and identify any scope for improvements, with the FCA reserving the right to consider targeted supervisory engagement where it has concerns about specific firms' performance.

Some firms demonstrated a clear understanding of the relationship between total price paid by customers and the quality of the product and services provided, using a combination of qualitative and quantitative information to assess fair value, including analysis across customer cohorts, distribution channels and pricing variations.  However, the FCA identified instances where firms could provide greater clarity on how they assessed whether the expected total price paid by the customer, including remuneration and other distribution costs, was reasonable relative to the quality of the product and services provided, noting in particular that some firms could strengthen the rationale provided for any thresholds or tolerance limits applied to customer value metrics.

The FCA found positive examples of manufacturers evaluating remuneration across different distributors and channels, with governance processes in place to evaluate the impact of changes to remuneration on value, including additional approval requirements for non-standard arrangements.  Some firms had also taken action where distribution arrangements adversely affected the value provided to customers, such as adjusting premiums, reviewing remuneration structures or terminating relationships with distributors where the value delivered did not justify remuneration.  However, the FCA found that firms could do more to evidence the impact of remuneration and other distribution costs in their fair value assessments, particularly in giving clarity on how commissions, premium loading and additional distributor fees are considered in relation to the total price paid by customers and the product's intended value.

The FCA saw positive examples of distributors using a combination of quantitative metrics and qualitative information to demonstrate that commissions received were aligned with the cost of distribution and level of service, including analysis of remuneration and distribution costs by marketing channel and insurer.  However, the FCA identified instances where distributors could be clearer about the relationship between remuneration and the services they provide, with some giving only high-level descriptions of their distribution services and limited evidence of how remuneration related to the costs incurred or the nature, extent and benefits of the services, and with some failing to adequately assess and evidence the appropriateness of commission levels in the context of those services.

The FCA concluded that, at current levels, loaded premiums are not leading to poor pricing outcomes for consumers, but emphasised that all firms must still be able to demonstrate how their product provides fair value to customers in the target market as required under PROD 4.  Under PROD 4, firms should consider the relationship between the overall price the customer paid and the quality of the product and/or services, including the impact of distribution arrangements and remuneration, and should focus on how commission arrangements support the intended value of the product, rather than focusing on the structure or label of the remuneration arrangement.

The FCA saw positive examples of firms defining their product's target market in detail, explaining how the characteristics and needs of specific customer segments aligned with the product's design and the value it offered, including the use of consumer classifications based on financial behaviour, product holdings and channel preferences.  However, the FCA identified opportunities for firms to strengthen the evidence supporting their target market assessments, with some firms using research relating to all financial services customers rather than evidence specific to their target market, and in some cases failing to link target markets sufficiently directly to consumers' specific needs and financial objectives.

The FCA's analysis found that for some healthy lives customers, guaranteed acceptance over 50s policies can be more expensive than comparable underwritten whole of life policies, with the average price difference between 12% and 22%, equivalent to around £25.50 to £47.60 per year.   However, the FCA noted that this average price gap does not apply evenly across all levels of cover; at lower sums assured, particularly below £4,000, guaranteed acceptance over 50s policies are on average cheaper than comparable underwritten whole of life policies. Given this evidence that some customers may receive better financial value from an underwritten whole of life product, the FCA considers it appropriate to confirm that regulatory safeguards are in place to ensure suitable customers are identified in the product's target market and are getting the intended value of the product.

The FCA identified positive examples of firms setting out in detail the information they shared with distributors and its relevance for understanding the product and its target market, including communicating which customers the product would and would not suit or provide fair value for, as well as maintaining regular dialogue with agreed schedules for engagement.  However, the FCA found that some firms could do more by clarifying exactly what information was shared and its relevance for the distributor's understanding of the product's target market, moving beyond a general description of the process to demonstrate the substance of what is communicated.

The FCA found that claims ratios across all pure protection products declined between 2024 and 2025, indicating that across the market, firms expect a lower proportion of premiums to be paid out in claims to consumers.  The FCA reminds firms that under PROD 4 they must be able to demonstrate that their product delivers fair value, and where a firm is unable to identify and clearly demonstrate this, it must ensure the product is not marketed or distributed, or that changes have been made so that it provides fair value.

The FCA has made clear that firms should consider the examples and findings in the report when reviewing their own arrangements and take opportunities to improve how they deliver and evidence good consumer outcomes and will continue to take supervisory or enforcement action where firms fall short of regulatory requirements.  The FCA has also reserved the right to consider targeted supervisory engagement if it is concerned about specific firms' performance, making this a matter of immediate practical priority rather than a longer-term compliance aspiration.