The City watchdog has challenged insurers to do more to protect British households, warning that millions remain financially exposed if illness or death strikes.
The Financial Conduct Authority has launched a consultation after finding that while the market for so-called “pure protection” insurance broadly works for those who buy it, most adults still go without cover.
Some 58% of UK adults do not hold products such as life insurance, critical illness or income protection despite many being likely to benefit.
In interim findings from its competition review,the FCA said consumers who do take out protection insurance generally receive fair outcomes. There is a wide range of products available, claims are usually paid when needed and the cost of cover has remained broadly stable in recent years.
SIGNIFICANT FAILURE
However, the regulator said the scale of under-insurance represents a significant failure of engagement rather than supply.
Research suggests many consumers are unaware of their protection needs or are never prompted to consider them. Others are deterred by affordability concerns, misunderstandings about what policies do and do not cover, or weaknesses in the sales and advice process.
CLOSE THE GAP
The FCA is now seeking views from insurers, advisers and other stakeholders on how to close the gap and bring protection products into the financial mainstream.
It said better consumer prompts, clearer explanations and improvements in how products are sold and reviewed could all play a role.
“These insurance products play a vital role.”
Graeme Reynolds (main picture, inset), director of competition and interim director of insurance at the FCA, said: “These insurance products play a vital role in helping families manage some of the most difficult experiences in life.
“While competition in the market is mostly working well for consumers, many more people could benefit from protection. We will work with industry to reduce this gap, to help consumers navigate their financial lives.”
GOOD VALUE
The regulator said it has already seen examples of firms delivering good value but will examine the market again using updated 2025 data before publishing its final report.
It will also consider reforms to product switching, amid concerns that consumers may be encouraged to move policies without clear benefit.
Any switch, the FCA said, must demonstrably meet the customer’s needs and improve their position.
A final report will be published in Q3 2026, setting out final findings and an update on progress.
HUGE UNDERTAKING
Rob Clifford, chief executive of Stonebridge, said: “Overall, the FCA rightly describes a market that is serving consumers extremely well but the regulator is clearly concerned about the protection gap, and so are we. We welcome the FCA’s findings.
“Most consumers don’t have any protection at all and a large proportion of them would benefit from it.
“For a long time now, the industry has been working hard to plug this protection gap, but there’s obviously still a lot more work to do.
“Our firm alone has invested millions of pounds on people and technology to enable more advisers to get quality protection advice to thousands more consumers.
“It’s a huge undertaking for the sector and it’s fantastic that a spotlight is being shone on it here with the regulator planning to provide pragmatic help.
“Levels of adoption won’t change overnight. It’s going to take a concerted effort from the FCA, insurers, networks and advisers to close the gap but the FCA should be congratulated for endorsing the existing distribution model which is already equipped to take on this challenge without major reforms.”
POSITIVE STEP
Tony Mudd, third party products and services director at St. James’s Place, said: “It is encouraging that the FCA found no major systemic failures, while still identifying practical areas for improvement.
“In particular, we support the focus on helping customers better navigate the claims process and linking protection advice more closely with wider financial planning, including Wills and Powers of Attorney.
“The FCA’s emphasis on collaboration to address the UK’s long-standing “protection gap” is a positive step. Closing this gap will require coordinated action across the industry rather than quick fixes, and we fully support the FCA’s intention to work with firms to develop solutions that improve consumer understanding, access and long-term outcomes.
“Overall, this is a constructive and balanced assessment of the protection market and an opportunity for the industry to build on what is already working well for customers.”
COMPETITIVE AND DELIVERING VALUE
Paul Yates, iPipeline product strategy director, said: “High claims acceptance rates, high satisfaction level, low complaint levels and modest insurer margins demonstrate a market that is competitive and delivering value, rather than one driven by excess or structural failure.
“This is an important signal of confidence in the role that insurers and distributors continue to play in supporting consumers’ financial resilience.
“Technology has clearly been a major enabler of these outcomes. Adviser portals, underwriting platforms and back‑office integrations have improved efficiency, transparency and speed across the value chain, helping advisers navigate product complexity and enabling insurers to compete effectively.
“Continued investment in and enhancement to this tech will be critical to sustaining good outcomes, supporting responsible innovation and ensuring firms can meet rising expectations under Consumer Duty.
OUT OF REACH
He added: “However, the biggest challenge highlighted by the FCA remains the protection gap. Too many people still lack cover not because the market doesn’t work, but because it remains out of reach – particularly for those without access to advice or meaningful prompts to engage.
“Closing the gap will require a collective focus on widening access.”
“Closing that gap will require a collective focus on widening access, improving engagement beyond traditional advice models, and using technology more creatively to reach customers who are currently excluded from the protection conversation.
This is a big challenge, but a challenge best solved collectively – collaboration between market stakeholders is key.”
FRAGMENTED INSIGHT
Sam Leonard-Williams, product director, Market Intelligence at Defaqto, said: “The FCA is right to highlight that innovation is being slowed by complexity and uncertainty.
“In our experience, the real barrier isn’t a lack of data, it’s that insight is often fragmented across systems, products and processes, making it harder for firms to evidence suitability, fair value and good outcomes.”
TARGETED SUPPORT
Carrie Johnson, Royal London’s protection director, said: “The FCA’s interim report acknowledges that the distribution of protection products is broadly serving customers very well. While there are some minor areas for improvement, it’s encouraging that a key area of focus is how advisers reach a greater number of unprotected consumers to further close the protection gap.
“We believe the concept of Targeted Support extending to protection could potentially be beneficial and would like to see this explored further.
“We will continue to work with advisers to deliver great outcomes and the regulator and broader industry to reach more customers.”
CONFIDENCE BOOST
Debbie Kennedy, CEO of LifeSearch, said: “This is a positive and constructive Interim Report from the FCA that gives the pure protection industry confidence to move forward, building on strong foundations already in place.
“We welcome the FCA’s recognition of the vital role of intermediaries and advice, and we value the close engagement with the FCA throughout this process to build shared understanding and practical solutions. LifeSearch remains fully committed to continuing that dialogue.
“We are particularly encouraged that the commission model is recognised as an important mechanism for helping to close the UK’s protection gap and for delivering positive customer outcomes.”
PRIORITY CHALLENGE
She added: “The protection gap remains a priority challenge for the industry and will require innovative, scalable solutions.
“The report’s recognition of ‘hybrid digital-advised distribution models’ reflects an approach LifeSearch has championed for many years.
“This is also why we have developed our partnership model – to meet consumers where they already are, whether through building societies, price comparison websites or trusted consumer brands, making protection more accessible to those who need it most – and they’re not left behind.
“We also welcome the FCA’s focus on the claims experience and the value intermediaries can bring.”
MISSED OPPORTUNITY
But James Daley, managing director of consumer group Fairer Finance, said: “The FCA’s protection market study is another missed opportunity.
“Many of the issues in the market have been side stepped – and once again, the main headline from the interim report is that the FCA is not planning any major action.
“The Government’s pro-growth, deregulation agenda continues to make all the running – with the FCA clearly feeling it cannot take any action which is seen to be unpopular with industry.
“It’s incredibly frustrating that the regulator has invested so much time and energy in both the protection and premium finance market studies – only to conclude that no action is necessary.
“These market studies were launched because of concerns about the way these markets were operating – yet the regulator has felt unable to follow through and take any action to address those problems.”
Read the interim report HERE.
