Pure protection market study: FCA publishes final report  

Background

On 21 September 2026, the Financial Conduct Authority (FCA) published its findings (MS24/1.5) from its market study into the distribution of pure protection products to individual retail customers (the Final Report).

Launched in March 2025, the market study examined issues identified across the following areas in respect of critical illness, term assurance, whole of life insurance and income protection:

• Consumer outcomes
• Pricing outcomes, value and firm profitability
• Protection gap and innovation
• Intermediaries and commission

The FCA has concluded that competition in the distribution of pure protection products generally works well for existing policyholders and delivers positive consumer outcomes.

However, it identified a significant number of consumers who remain uninsured, which it sees as a material “protection gap”: 58% of consumers do not hold any protection products and that, of those consumers, 59% have never considered their protection needs. The FCA is concerned that the protection gap may result from limited consumer awareness and understanding, or from challenges in the sales process that make access difficult. Addressing the gap is a priority for the FCA in its wider effort to improve financial inclusion.

Key findings

The FCA’s key findings include that:

• The pure protection market generally offers good consumer outcomes and that most claims ratios are over 50%. The FCA found that a wide range of products are available, claims acceptance rates are high and complaints are low compared to other insurance products and relative to the number of in-force policies. However, income protection products were found to have lower claims ratios than other pure protection products.
• Pricing outcomes do not justify market intervention. Following on from the findings of its Interim Report wherethe FCA noted that insurers earn only modest margins and there is wide premium dispersion and profit margins suggest that there is a degree of competition in the market, the FCA has concluded that they do not see a need for market-wide intervention on commission structures, including loaded premiums, and restricted panels based on their review of pricing outcomes in the market.
• Intermediary firms may be promoting new policies to customers to obtain repeat commission (also known as “switching”) at the end of clawback periods. Although insurers are aware of the practice and current levels do not appear to create significant consumer harm, the FCA observed that unnecessary switching does little to address the protection gap. The FCA also identified evidence of poor practices among some intermediaries, including attempts to offset commission clawbacks through the sale of replacement policies. While not currently material at a market-wide level, the FCA considers these practices should continue to be monitored.
• There is evidence of a “protection gap”, being the gap between the potential needs for pure protection coverage and the actual amount of coverage held. While measuring the protection gap is inherently difficult, the FCA considers that there is a gap and that a likely key cause is a lack of both consumer awareness of the need for pure protection coverage and of insufficient prompts to consider the need for coverage, as well as affordability and access issues, particularly for those consumers with pre-existing medical conditions.

What action is the FCA proposing?

The Final Report sets out a package of measures aimed primarily at reducing the protection gap. Rather than introducing new rules, the FCA is focusing on FCA-led, industry-led and stakeholder-led initiatives operating within the existing regulatory framework.

Key elements of the remedies package include:

• Encouraging engagement and raising awareness: The FCA intends to work with stakeholders to introduce prompts for consumers to consider pure protection products at key life events, in particular, collaborating with the public sector, government and charities. The FCA is also engaging with trade associations to promote initiatives designed to increase consumer engagement and raise awareness.
• Encouraging innovation: Subject to sufficient industry interest, the FCA plans to run a TechSprint – a structured innovation programme – in Q3 2027 to explore technology-enabled solutions designed to reduce the protection gap and improve consumer engagement with protection products. The FCA invites expressions of interest from firms and other stakeholders who would like to participate in the TechSprint by 13 November 2026. The FCA also encourages firms to make use of its regulatory sandboxes and intends to hold a “myth-busting” webinar in Q1 2027 to clarify its expectations, amidst concern that firms may be unnecessarily cautious to innovate for compliance reasons.
• Industry-led initiatives to reduce friction in the sales and claims process: The FCA intends to support the work of the Association of British Insurers to address challenges in obtaining medical information that can cause delays and friction in the underwriting and claims processes.
• A supervisory emphasis on product governance, Consumer Duty and fair value assessments: The FCA reiterates that firms must be able to demonstrate that their products deliver fair value in accordance with the Consumer Duty and PROD 4 requirements. Where firms cannot clearly evidence fair value, they should ensure that products are either withdrawn from distribution or amended so that fair value can be demonstrated. Firms should also make sure that prompts, signposting and disclosure meets Consumer Duty requirements.

Key takeaways

The FCA’s Final Report signals a collaborative, stakeholder-led approach to narrowing the protection gap in support of the FCA’s wider drive to support financial inclusion. Firms looking to innovate in this market should feel encouraged.

All firms, however, should note the FCA’s consistent message regarding the importance of compliance with the Consumer Duty and PROD 4 requirements, in particular ensuring that the product, and how it is distributed and administered, delivers fair value for customers. The FCA has indicated it will monitor developments closely and that it may intervene if it identifies harmful outcomes.