The Financial Conduct Authority announced in August 2024 that it would investigate commissions paid to advisers for ‘pure protection’ insurance products – the review has now begun.
Pure protection insurance policies are available to individuals, couples or key business personnel and include ‘whole of life’ cover, term assurance, critical illness cover and income protection insurance. They exist to help people through life’s more challenging times, paying out a lump sum or a regular income to maintain financial stability during a period of job loss, serious injury or illness, or upon death.
The Financial Conduct Authority (FCA), which regulates the financial services industry in the UK, has been undertaking wide-ranging reviews in recent years to determine how well different sectors align with Consumer Duty, its updated rules that require financial businesses such as insurers and brokers to put their customers’ needs first. The FCA’s review of the protection insurance market is now underway.
Why is the FCA review into protection insurance products needed?
+ −Last year, the FCA announced that it would investigate how protection products are sold and how commissions are arranged. There are concerns that not all products offered to customers represent ‘fair value’, leading to financial mis-selling.
Of particular interest is how commissions are ‘earned’ by advisers. Tactics already uncovered by the FCA include:
- Advisers getting clients to switch insurance policies unnecessarily, just so they can earn another commission.
- Brokers or intermediaries asking customers to pay more for their policies – known as ‘loaded premiums’ or ‘loaded commissions’, yielding a higher commission but offering no added benefit to the customer.
- Intermediaries recommending certain products that maximise their commissions, rather than providing best value to their clients.
In other parts of the financial sector, such as pension and investment advice, commission-based fees were abolished as far back as 2012. The Retail Distribution Review ensured that customers received clearer communications about how they were being charged for financial advice.
What might the FCA’s protection insurance review achieve?
+ −The current review of protection insurance products aims to understand fees and commissions better and propose far-reaching industry changes that will lead to better customer outcomes.
There is a consensus that people are less likely to pay an upfront fee when buying protection insurance and are happier to build the cost of administering the policy into an ongoing commission. This makes a total ban on commissions unlikely.
Some industry experts believe the review will likely result in new rules for intermediaries and that a commission cap could be introduced. Others remain wary that the practice of unnecessary ‘rebroking’ will not stop.
In 2018, the FCA reported on the ‘protection gap’ in the UK, revealing that 65% of the adult population had no form of protection insurance. At that time, only 10% of the population had critical insurance cover, and 4% had income protection insurance. The 2024 figures paint a slightly improved picture, with 37% of UK adults having life insurance and 14% having income protection cover. The FCA will be mindful of this gap in the market when conducting its review, to ensure any recommendations or new rules do not cause it to widen.
Ultimately, the FCA must ensure that this part of the financial services industry is fit for purpose and remains commercially viable to those selling the policies. It must also offer ‘fair value’ to customers and support good customer outcomes.
TLW Solicitors’ point of view
+ −Sarah Spruce, Legal Director at TLW Solicitors, says of the review:
“We welcome the proactive steps that the FCA is taking and hope to see improved transparency and consistency around fees and commissions in the protection insurance sector. Many people who purchase these products have a limited understanding of the industry and may not realise what proportion of their monthly premium goes towards paying their adviser or if it represents good value for money.
Protection insurance products should, first and foremost, be sold based on their suitability for a person’s needs, and as we have seen with other consumer-led financial products, there must be a mechanism by which people can seek redress for financial mis-selling.
My financial mis-selling team have already had some enquiries from clients concerned about their policies. Given the FCA’s approach, I would encourage anyone worried about the circumstances surrounding theirs or a loved one’s purchase of a ‘pure protection’ insurance policy and feel they have lost out financially, to get in touch. We can then explore your options, including whether you may be eligible to make a ‘no-win, no-fee’ compensation claim.”
What is protection insurance mis-selling, and how can you make a claim?
+ −You may have been mis-sold protection insurance if you were:
- Offered an unsuitable policy, such as a life insurance policy that pays out when you die, but you have no dependents who would benefit.
- Pressured into buying a policy or told you must have insurance as a condition of a loan or mortgage.
- Encouraged to unnecessarily switch to another policy (so the adviser collected another commission).
- Not given a detailed explanation of policy limitations, such as pre-existing medical conditions that are not covered, or not told that the policy was ‘reviewable’ and premiums could increase over time.
- Sold a policy without a clear explanation of fees, charges, commissions and/or loaded premiums.
If you believe you were mis-sold protection insurance, the first step is to complain to your insurance provider. They have 8 weeks to investigate and give you an answer. If your claim is rejected or you disagree with their findings, you can take it to the Financial Ombudsman Service (FOS). FOS is an independent, government-backed body responsible for settling disputes between financial institutions and their customers.
FOS investigations can involve different stages, including claims and appeals processes, which can be time-consuming and complex. TLW Solicitors can help you navigate the financial and legal jargon, ensuring your case is progressed quickly and you receive the outcome you are rightly owed.
TLW Solicitors are financial mis-selling claims specialists – contact us
+ −We have many years of experience dealing with consumer claims and financial mis-selling. Our experienced team can guide you through the process, clearly explaining what paperwork needs to be gathered and submitted along the way, keeping you fully up to date at every key stage.
At TLW Solicitors, we work on a ‘no win, no fee’ basis and only charge you a fee when your case has reached a successful conclusion. Once we receive your enquiry, the team will assess whether you have grounds for a successful claim.
Please call us on 0191 293 1500, email us at info@tlwsolicitors.co.uk, or complete one of the forms below, and our team will contact you for an initial, confidential and no-obligation consultation.
Getting advice as soon as possible is important, as strict time limits can apply.
Minimum case values apply.
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