Protection advisers have said that the practice of loading premiums boosts commissions, costs customers more, and could be the next mis-selling ‘scandal’.
The term protection insurance refers to products such as critical illness cover and life insurance. Many people hold such policies for years, hoping they will never be needed, but are reassured by the financial security they provide if circumstances change. The practice of ‘loading’ premiums means many customers have paid thousands of pounds more than necessary, and in response the industry is speaking up and calling for clear guidance and tighter regulation.
Rob Peters from Simple Fast Mortgage says loaded premiums are “hard to justify ethically”. Daniel Hobbs from New Leaf Distribution wants a level playing field and believes that brokers adding 10-15% onto premiums is “ridiculous”. Hannah Bashford from Model Financial Solutions adds that this sort of practice “gives the industry a bad name and destroys consumer trust”.
What are ‘loaded premiums’?
+ −When you get a quote for any insurance, you will typically be offered a monthly or annual premium, with details of what is and isn’t covered by the policy, and the excess that is payable upon making a claim. An insurer will underwrite the policy, but what may not be immediately clear is how much an adviser, broker or intermediary is paid when they sell it to you.
Loaded premiums include the cost of insurance cover, plus an additional amount to cover the adviser’s commission. There is no industry standard or cap for the amount of commission added, and some advisers and insurers have special arrangements, allowing them to charge the customer a higher premium solely to secure a more favourable commission for themselves.
The practice of loading premiums means that different customers can pay different monthly premiums for the same level of cover, depending on who they buy their policy from. Over time, that difference can add up to many thousands of pounds, and many advisers have been calling for this practice to be banned. Some sources say that commissions could be as high as 30% of the monthly premium.
Protection insurance review
+ −The introduction of Consumer Duty in 2023 brought in new rules for financial firms, requiring them “to act to deliver good outcomes for retail customers”. Since then, the Financial Conduct Authority (FCA) has announced reviews of products and services, including a review of the protection insurance market.
The FCA is the financial services industry regulator, whose primary objective is to ensure consumers receive fair treatment. Its review of the protection insurance market is now underway, with a particular focus on loaded premiums. The industry wants to see better customer outcomes, whilst being mindful of the UK’s ‘protection gap’ (the number of people who do not have protection insurance).
It is hoped that better regulation and guidelines will standardise the protection insurance market and protect more customers from financial mis-selling.
What is protection insurance mis-selling?
+ −Protection insurance mis-selling leads to unfair outcomes for consumers. The Financial Conduct Authority has already identified the following tactics:
- Unnecessary rebroking: advisers asking clients to switch to another insurance policy, so that they earn another commission
- Loaded commissions: customers pay more for their policy, without receiving any additional benefits
- Unsuitable recommendations: intermediaries endorsing certain products to maximise their commission, rather than offer best value to clients
Customers also lost out by being advised to cancel existing policies and take out new ones, resulting in higher premiums and less favourable terms and conditions. Others were sold ‘whole of life’ policies, not realising that they were reviewable and would end up becoming unaffordable or offering lower levels of cover.
What should I do if I have been mis-sold protection insurance?
+ −If you believe that you have been mis-sold life insurance, critical illness cover, or income protection insurance, you should contact the adviser or company you purchased the policy from. Outline your complaint and ask them to investigate. If they do not respond, or you are unhappy with the outcome, you can escalate your complaint to the Financial Ombudsman Service (FOS).
FOS is an independent, government-backed organisation, set up over 20 years ago to settle disputes between FCA-regulated financial organisations and their customers.
Financial mis-selling claims can be complex and time-consuming. If you are eligible to make a claim, TLW Solicitors’ specialist team can assist you in navigating the process.
TLW Solicitors’ point of view
+ −Sarah Spruce, Legal Director at TLW Solicitors, comments:
“Many people took out protection insurance years ago without fully grasping the finer details of what they were committing to. Growing concerns over loaded premiums have rightly drawn the attention of both the insurance industry itself and the FCA, raising questions about widespread mis-selling and whether customers were ever given clear information about what they were buying. My team and I fully support the FCA’s comprehensive review and await its conclusions with interest.
Reviewable policies in particular can catch people out – premiums may rise sharply and the payout amount may fall, often without the policyholder realising until it’s too late.
At TLW Solicitors, we’re here to help. If you suspect that you or a loved one may have been mis-sold an insurance policy, we can assess your case and advise whether you may have a valid claim. Our experienced team will guide you through what can often be a complex process. Contact us for a confidential, no-obligation conversation and to find out if you are eligible to make a ‘no win, no fee’ claim.”
TLW Solicitors – financial mis-selling claims specialists
+ −We specialise in compensation claims when consumers have been mis-sold and have helped many clients with a wide range of financial mis-selling claims. We work on a ‘no-win, no-fee’ basis and provide a free, no-obligation initial discussion to review your case.
Even if you took out your insurance policy decades ago and have limited paperwork to hand, we can help. Our team has years of experience working with banks, financial institutions, and the Financial Ombudsman Service (FOS).
If you are concerned that you were mis-sold whole of life insurance, term assurance, critical illness cover, or income protection insurance, please call us on 0191 293 1500 or complete one of the forms below.
It is important to get advice as soon as possible, as strict time limits apply.
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