PDG response to MS24 1.2 market study into the distribution of pure protection products to retail customers

In October the PDG responded positively to the initial Terms of Reference, highlighting the lack of clarity when results were to be published, pointing out that this could have an impact on those that may be looking to invest in this market in the future.

MS24/1.2 confirms that the FCAs initial findings will be published around the end of 2025 but importantly states that they plan to maintain proactive and regular engagement with stakeholders, with plans to publish several pieces of analysis to share latest thinking throughout the year, which the PDG welcomes.

We also welcome the expansion of the scope to include broader protection environment activities involving reinsurers, portals and product comparison platforms in the way they influence the market, accepting they are not the direct focus of the market study.

The additional sections include:

The “protection gap and access to necessary cover” which will give greater clarity on whether customer outcomes are well served for those falling outside the “healthy lives” definition, and how well vulnerable customers are served.
And “barriers to innovation and investment”, where feedback has indicated ongoing initiatives that may help market expansion, as well as several areas of potential innovation such as improved customer journeys, simplifying the policy wording and product innovation.

A greater understanding of the drivers behind the recent insurer exits may help understand the competitiveness of the UK market and current barriers to entry, and also whether consumers are receiving appropriate product choice and fair value when purchasing protection products.

We note that Business and Key Person insurance remains outside the scope of the study. Whilst not being volume business, and almost 100% intermediary distributed, they are fundamentally the same term and CI products.

Broadly the rationale and focus of the study hasn’t changed significantly, with the assessment looking at the following key areas:

Design of distribution arrangements and commissions
Fair value of some pure protection products
Impact of recent insurer exits
Protection gap and access to necessary cover
Barriers to investment and innovation

We do feel that commission itself, including indemnity commission, is an appropriate way to remunerate intermediaries, and sustain intermediation and specifically advice in protection. We agree that insurers loading premiums in order to pay selected networks and distributors higher commissions needs to be investigated to ensure fair value.

“We feel that, in order to avoid abuse, insurers need to undertake effective checking of the marketing and sales behaviour of the intermediaries they pay commission to.”

And we feel that, in order to avoid abuse, insurers need to undertake effective checking of the marketing and sales behaviour of the intermediaries they pay commission to. We believe the review should clarify this point to insurers, who in dealings with us have made clear that they see that as ‘the regulator’s job.’ We’d expect such quality checking to help address the “unnecessary re-broking” identified in section 3.6.

We believe one of the most important areas the review should address is the transparency of the sales process in terms of consumer understanding of the difference between buying with advice versus through a non-advised sales process.

The PDG is pleased to see the final TOR and expected reporting timescales. The high claims paid ratios in term life products and the relatively low number of complaints received by the Financial Ombudsman are positive indicators that the products do deliver to policy holders or their dependents in the event of death, incapacity or injury, providing financial resilience when consumers are at their most vulnerable.

We welcome the market study and will continue to assist during the remainder of 2025.

Neil McCarthy is chair of the Protection Distributors Group