MS24/1: Pure Protection Market Study

Read the Terms of Reference (PDF)[2]

Read the market overview (PDF)[3]

Introduction

Pure protection products are designed to help an individual, and/or their dependents, with existing financial commitments or lifestyle adaptations if the policyholder dies or becomes incapacitated, injured or infirm. They include term assurance, critical illness cover, income protection insurance, and whole of life insurance including both underwritten whole of life insurance and guaranteed acceptance over 50s plans.

Pure protection products are important. Consumers rely on them to provide financial resilience, often when particularly vulnerable. In 2023, approximately £4.85bn was paid out in pure protection claims on individual policies, aiding those affected by bereavement, illness, and injury.

The main distribution channel for pure protection products is through intermediaries, both on advised and non-advised bases. This approach can be cost-effective for insurers and allows consumers to benefit from intermediaries’ expertise and market access.

Rationale for the market study

We are launching a market study into the distribution of pure protection products to consumers acting in their personal capacity. We will examine whether the distribution of pure protection products works well against our operational objectives, including whether competition works in the interest of consumers. If the distribution of pure protection products is working well consumers should be able, for example, to buy products   and services that meet their needs, provide fair value, and supports them in making timely, well-informed decisions.

We observe positive indicators in pure protection, including a relatively low number of complaints received by the Financial Ombudsman[4] and, according to published Association of British Insurers[5] (ABI) data, over 95% of new consumer claims being paid out on some products (eg term assurance).  

There are also indications that distribution of pure protection products may not be fully effective. We will examine the incentives created by commission structures, competitive constraints on insurers and intermediaries, and the influence of other market participants (such as re-insurers, portals, research firms and lead generators) on distribution. We will also explore any potential barriers to innovation and investment.

We will also assess whether the consumer outcomes that we observe align with those expected under the Consumer Duty[6] and/or our PROD rules. Concerns include unnecessary consumer switching driven by intermediaries, commission practices that may not represent fair value (eg raising premiums to pay an intermediary higher commission), and fair value issues with some products (eg guaranteed acceptance over 50s insurance). Some studies also suggest a substantial protection gap in pure protection products.

Our Terms of Reference[2] set out why we are doing the market study, its scope, the key issues we'll explore, the potential outcomes that our work might lead to, and our next steps.

What we've done so far

Requests for information

Following a pilot, we issued requests for information (RFI) to a sample of over 30 insurers and intermediaries.

We asked firms to provide information about sales, their distribution strategy, commissions, the nature of competition, and consumer outcomes. We will use the information to examine many of the concerns listed in our terms of reference such as:

• the incentives created by commission structures
• competitive constraints on insurers and intermediaries
• the influence of other market participants on distribution, and
• potential barriers to innovation and investment

We are currently receiving and processing RFI responses. We expect to complete much of our review and analysis in Q3 2025.

Consumer research

We are also carrying out some qualitative and quantitative consumer research.

We are exploring consumers’ experience of purchasing pure protection products and the outcome, considering differences between different types of consumer and distribution channels.

This is to help us assess how confident and effective consumers are at selecting and purchasing protection products.

Next steps

We expect to publish an interim report with our initial findings and proposed next steps around the end of 2025.

Before that, we will publish the findings of our consumer research on pure protection in the UK.

We will also keep stakeholders updated via engagement individually and via trade associations.

If the distribution of pure protection products is not working well against our operational objectives, including our competition objective, we will consider whether any improvements are needed on a forward-looking basis. This is in particular to support competition that delivers innovation and investment and to make sure the market works well for consumers. Market studies are forward-looking and do not examine past conduct of individual firms or set out to establish the basis for redress.

Any queries

If you want to get in touch with us about the market study, please contact [email protected].