The Protection Distributors Group (PDG) has responded positively to the Financial Conduct Authority’s (FCA) latest update on the MS24/1.2 market study into the distribution of pure protection products to retail customers.
In its initial response to the Terms of Reference last October, PDG raised concerns about the lack of clarity regarding the publication timeline, highlighting the potential impact on future investment in the market.
The FCA has now confirmed that initial findings will be published around the end of 2025. Crucially, it has also committed to maintaining proactive and regular engagement with stakeholders throughout the year, including publishing interim analyses to share its latest insights. PDG strongly supports this approach, as it ensures ongoing dialogue and greater transparency in the study’s progress.
BROADER INFLUENCES
The scope of the study has also been expanded to explore broader market influences, including the role of reinsurers, portals, and product comparison platforms. While these areas are not the primary focus, their impact on market dynamics is significant and warrants further examination.
Additionally, the study will now assess whether customer outcomes are equitable, particularly for those outside the “healthy lives” definition and vulnerable customers. It will also examine barriers to innovation and investment, identifying initiatives that could drive market growth and improve customer experiences through policy simplification and product design.
DEEPER UNDERSTANDING
A deeper understanding of recent insurer exits will be instrumental in evaluating the competitiveness of the UK market, identifying potential barriers to entry, and ensuring consumers have access to appropriate product choices at fair value.
However, PDG notes that Business and Key Person insurance remains outside the scope of the study. While these products may not represent high-volume business, they are almost entirely intermediary-distributed and fundamentally similar to term and critical illness products.
PDG believes that commission, including indemnity commission, remains a valid and necessary method of remunerating intermediaries, sustaining intermediation, and ensuring protection advice remains accessible.
FURTHER SCRUTINY
However, it supports further scrutiny into insurers loading premiums to fund higher commissions for selected networks and distributors, as this practice needs to be addressed to ensure fair value for consumers.
Additionally, PDG stresses the importance of insurers taking greater responsibility for monitoring the marketing and sales behaviors of intermediaries they pay commissions to. The group expects the review to clarify this issue, particularly in response to insurers indicating that such oversight is solely the responsibility of the regulator.
Addressing these concerns should help mitigate unnecessary re-broking, which has been identified as an issue within the study.
SALES TRANSPARENCY
One of the most critical areas PDG believes the review should address is the transparency of the sales process, particularly ensuring that consumers understand the difference between purchasing a policy with advice and through a non-advised sales process.
A well-informed consumer is better positioned to make choices that align with their financial protection needs.
PDG welcomes the final Terms of Reference and the expected reporting timescales. The high claims-paid ratios in term life products and the relatively low number of complaints received by the Financial Ombudsman demonstrate that these products effectively provide financial resilience to policyholders and their dependents during times of need.
The group looks forward to continued engagement with the FCA and other stakeholders throughout 2025 to ensure the market study leads to meaningful improvements in the protection industry.
