FCA interim report on pure protection distribution

5 March 2026

Tags Insurance Financial services Risk consulting

The FCA is looking into the distribution of pure protection products: term assurance, critical illness cover, income protection insurance and whole of life insurance.

The FCA released the interim report [1] in January, asking for feedback by 31 March 2026. The final report will be published in Q3 2026.

The FCA stated that intermediaries accounted for around 80% of sales in 2024, playing a key role to help consumers navigate the range of pure protection options. To assess consumer outcomes, they looked at the range of products available, claims acceptance rates, customer satisfaction, complaints and signs of innovation. The FCA also looked at price (premium) dispersion and whether it reflected risk-based pricing and product complexity. The FCA found that new business premiums remained stable and insurers’ margins were low, suggesting competitive pressure on premiums.

The FCA does not envisage making significant interventions but said that some aspects of the market could work better.

Potential findings

Protection gap

There are many customers (58% of adults) who would benefit from pure protection, but who do not have cover. The FCA calls this the ‘protection gap’ that it wants to help close. Consumer research showed that a higher proportion of policyholders are male, working, under 65 years and with dependent children. Policyholders typically have higher levels of income and savings, and have a mortgage, considering themselves savvy and confident in financial matters. A higher proportion of those without cover had vulnerabilities relating to low resilience, low capability and poor health. Initiatives have been suggested, such as awareness campaigns, using more prompts or trigger points, or extending the targeted support that is being introduced for pensions and retail investments.

Income protection claims ratios

These are lower than other pure protection products (40% as opposed to 50%+). The FCA stated that this was largely explained by product features. For example, income protection is riskier to insurers and costlier to sell and administer. Income protection premiums have been falling faster than other products which may increase the claims ratio. The FCA will therefore revisit its assessment of claims ratios using 2025 data.

Incentives to switch consumers

The FCA was concerned that some intermediaries are encouraging customers to switch to a new policy to generate repeat commission (‘churn’). Data on policy lapses indicated a spike after commission clawback periods ended, which was likely influenced by commission incentives rather than consumer need. Some intermediaries could not distinguish sales to new consumers from sales to existing consumers, which makes monitoring churn difficult. The FCA wants the sector to collect, monitor and report better information on customers switching. The FCA proposes to work with industry to develop proportionate and effective reporting metrics.

Claims experience

Some intermediaries go further than others to support customers at the point of sale (such as placing policies in trust, setting up wills and powers of attorney), which can improve consumers’ experience if they need to claim. The FCA would like to make this widespread.

Other points raised

Value for guaranteed acceptance over 50s

The FCA found that purchasers of underwritten whole of life policies generally received better value than those who bought guaranteed acceptance over 50s products. Take-up of these products was highest among social renters, low-income households and those with vulnerabilities, who may not be able to, or choose not to, access underwritten insurance. Firms highlighted the simplicity and certainty of acceptance as a primary benefit for customers. The FCA’s research found that customers were positive overall and largely satisfied with their purchase decision.

Fair value assessments showed that firms had improved product design. For example, by changing premium caps, which determine when a consumer is no longer required to pay premiums but remains entitled to the policy benefit. The FCA noted that guaranteed acceptance over 50s policies paid the highest commission rate as a percentage of premiums.

Intermediary commission

Commission revenues and costs differed between intermediary business models, but the FCA did not see evidence of high profitability. When looking at the relationship between commission rate (%) and annual premiums, the FCA did not find that loaded premiums [2] resulted in higher premiums for consumers. Premiums were also similar across restricted panel and whole of market arrangements. However, there was evidence of poor practice from certain intermediaries, leading to potentially unsuitable sales and written off clawbacks.

Bereavement claims

The FCA mentioned findings from its 2024 review of bereavement claims [3] that few insurers capture end-to-end claim journey times by product type, limiting visibility of service outcomes and value. Where data was available, bereavement claim times were lengthy – typically 53 to 122 days for term assurance.