The Financial Conduct Authority (FCA) has launched a market study into how well the distribution of pure protection insurance policies is working for customers.
Pure protection insurance products are designed to support families with financial commitments if someone becomes critically ill or dies.
The regulator said that in 2023, around £4.85bn was paid out in claims on individual policies to support people suffering from bereavement, illness and injury.
The FCA’s review is set to explore how effectively the market is working. It comes after the regulator initially committed to looking into the sector in further detail in August 2024 and has since taken feedback from the market on the terms of reference.
The FCA stated that while it has "seen indications of good outcomes for customers and relatively few complaints", it said that there are concerns that commissions used to sell these products "may affect the outcomes consumers receive and the products’ value or design".
The study will examine whether the structure of commission encourages advisers to suggest switches that may not be beneficial for consumers and if premiums are being raised by insurers to pay a higher commission to an intermediary.
It will also look at whether the products on offer provide fair value and if the market supports innovation and growth.
The study will focus primarily on the sale of term assurance, critical illness cover, income protection insurance and whole of life insurance.
It will allow the FCA to carry out more detailed analysis in these areas using its competition powers and the launch does not presuppose any particular outcome.
The regulator said that its initial findings and any proposed next steps will be published by the end of 2025.
Executive director of supervision, policy, competition and international at the FCA, Sarah Pritchard, said: "Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness, or injury. We are determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements.
"In launching the study today, we will be able to take a closer look before considering next steps. We will keep stakeholders regularly updated and welcome the feedback to date that will help us plan the scope of this review."
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