FCA Pure Protection Market Study: what firms need to know

Despite the importance of these products, the Final Report highlights that 58% of people don't hold any protection products, of which 59% have never considered their protection needs. Those most affected are consumers with more complex needs, less stable incomes, lower financial resilience or fewer opportunities to engage with protection products through established distribution channels, including consumers with pre-existing or complex medical conditions, renters, lower-income households and people in self-employment or gig economy work.

On the supply (firm) side, whilst competition has driven improvements over time, a long and complicated sales process can lead consumers to abandon it. Underwriting can be lengthy or complex, medical evidence takes time to obtain, product communications can be unclear, or products may not be available for consumers with more complex needs.

To address this, the FCA is not introducing new rules and instead will rely on industry and wider stakeholder-led actions via existing frameworks. Notably, the FCA has decided not to extend targeted support to pure protection at this stage, concluding it would not be proportionate. That means the burden falls on industry to deliver.

A package of industry and FCA-led remedies will target the gap, with firm participation expected:

• The Association of Mortgage Intermediaries (AMI) will lead a cross-industry initiative to strengthen adviser engagement with protection, helping shape a consistent industry approach that supports advisers in understanding, discussing and recommending protection solutions more effectively, including increasing adviser confidence in discussing protection with clients and encouraging more frequent and consistent protection conversations throughout the advice journey.

• The Protection Distributors Group (PDG) has been asked to lead the market's key stakeholders in developing a market-wide initiative aimed at addressing weak consumer engagement with and understanding of protection, with particular focus on renters, the self-employed and gig-economy workers. The FCA expects this to be a sustained programme of work, not a one-off marketing campaign.

• Market participants and other relevant stakeholders should engage constructively with the initiative, provide appropriate resource and financial support, and participate actively and collaboratively in its delivery.

Under the Duty, firms must ensure consumers are given the information they need to make effective, timely and properly informed decisions, including, when consumers take out a mortgage, ensuring they understand the associated risks and how those risks could be mitigated by protection cover.

FG22/5 makes clear that where a firm declines to provide a customer with a particular product or service it should still consider whether there is information or support it could provide to help the customer pursue their financial objectives, and the FCA notes that pure protection intermediaries and insurers should consider a similar signposting approach to that used by travel insurers when they decline customers.

Firms are reminded of their obligations under the Duty, particularly in relation to consumer understanding. Customers should have the information they need, at the right time and presented in a way they can understand.

The FCA found scope for firms to strengthen the evidence underpinning their assessments of target market value and the impact of remuneration and distribution arrangements on consumer outcomes and fair value. 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. Firms should consider the impact of commission arrangements on the overall price and how these support the intended value of the product, rather than focusing on the structure or label of the remuneration arrangement.

The FCA concluded that, at current levels, loaded premiums are not leading to poor pricing outcomes for consumers and does not think that any market-wide intervention is necessary. However, the FCA reminds firms that under PROD 4 they must be able to demonstrate that, depending on their particular role, the product delivers fair value and that any distribution arrangements are consistent with the aim of providing fair value, with products also needing to be compatible with the target market including customers' needs, characteristics and objectives.

The FCA found a risk that commission structures drive poor outcomes by incentivising intermediaries to encourage consumers to switch to a new policy following the end of the clawback or indemnity period, defining unnecessary switching as occurring when an intermediary encourages a customer to switch (in order to gain a commission) to a policy that does not better suit the consumer's needs or offers less value.

Approximately 19,000 customers per year may be affected, representing roughly 0.1% of policyholders. At this scale, the FCA doesn't consider that market-wide intervention is justified, though supervisory monitoring will continue.

The FCA's analysis shows that for some healthy lives customers, guaranteed acceptance over 50s policies can be more expensive than comparable underwritten whole of life policies, with an average price difference of between 12% and 22%, equivalent to around £25.50 to £47.60 per year. Firms operating in this space are reminded of their PROD 4 obligations and need to be clear about the customers these products are designed for and how the product delivers value for them.

The FCA has also identified that firms could do more to clarify exactly what information is shared with distributors and its relevance for the distributor's understanding of the product's target market. Positive examples and areas for improvement are set out in Annex 2, including across target market definition, information sharing with distributors and monitoring of distribution arrangements.

Income protection had the lowest claims ratio among pure protection products at 40% in 2024 and the second-highest margin for insurers at 12%. The FCA's refreshed assessment using 2025 data showed the claims ratio declined by a further percentage point to 39%, with the margin decreasing from 12% to 11%.

Responses to the Interim Report confirmed that product-specific factors, including higher capital requirements, reinsurance constraints and the cost of rehabilitation services, largely explain this position.

The FCA reminds firms that under PROD 4 they must be able to demonstrate that the product delivers fair value. Where a firm is unable to do so, it must ensure the product is not marketed or distributed, or that changes have been made so that it provides fair value, and this is particularly important given income protection is a key part of proposals to reduce the protection gap for self-employed and gig-economy workers.

The FCA will continue to monitor outcomes for income protection customers through its supervisory work and review of market data, and if evidence indicates that income protection products may not be providing fair value to consumers, it may launch a further phase of work to gather more evidence and take action where appropriate.

Pure protection policies can be used as tools for domestic financial abuse towards a partner, particularly where policies are held jointly or where one individual remains financially or administratively connected to another after separation. The FCA wants firms to be alert to the signs of domestic financial abuse, and under the Consumer Duty, its Guidance for Treatment of Customers in Vulnerable Circumstances and PROD 4, firms are expected to understand customers' needs, including those with characteristics of vulnerability, and to design, distribute and recommend products in a way that avoids foreseeable harm. This is a material and underappreciated risk for advisers to address directly.

A consistent theme from responses to the Interim Report was the existence of a 'beneficiary gap', particularly in non-advised channels, where policies are not placed in trust or are set up without named beneficiary nominations. Firms and representative bodies agreed that measures such as writing policies in trust, encouraging consideration of wills and powers of attorney, and ensuring clarity over beneficiary arrangements can materially reduce delays and uncertainty at claim stage. Many firms offer preparatory tools such as trusts and beneficiary nominations at the point of sale, but these are promoted inconsistently, and consumers may not understand their importance.

Under the Duty, firms are expected to deliver good outcomes by meeting consumers' information needs for the product and providing support that mitigates foreseeable harm across the policy lifecycle, including ensuring they do not create avoidable barriers to good outcomes at the point of claim.

Delays in obtaining relevant medical information can be a significant friction in underwriting and claims journeys, particularly for consumers with pre-existing medical conditions.

The FCA will seek to bring together a range of relevant stakeholders, including insurers, government, regulators, health representatives, consumer representatives and other stakeholders, for a roundtable in Q1 2027 to consider the impact of delayed access and identify potential solutions.

The FCA proposes to run a TechSprint to test technology and data-led solutions to friction in the consumer journey, subject to sufficient engagement from firms and other stakeholders. Firms and other stakeholders who would like to participate and help shape the problem statements should submit their expressions of interest to PureProtectionMS@fca.org.uk by 13 November 2026.

The TechSprint is likely to focus on consumer awareness and understanding for those with low financial literacy or characteristics of vulnerability; application and underwriting journeys, particularly for consumers with pre-existing medical conditions; and product design and access for self-employed consumers, gig economy workers or non-standard risk profiles. Subject to sufficient interest, the TechSprint is expected to take place in Q3 2027.

The FCA will also run a myth-busting webinar in Q1 2027 to clarify regulatory expectations and reduce unnecessary compliance caution.