The Financial Conduct Authority has issued a significant call to action for the insurance sector, urging providers to help more consumers access vital protection products that safeguard families during life's most challenging moments.
Widespread Protection Gap Identified
New findings from the City regulator reveal a concerning protection gap across the United Kingdom, with more than half of all adults currently lacking any form of pure protection insurance product. This substantial shortfall persists despite the clear benefits such coverage offers during critical life events.
Understanding Pure Protection Products
Pure protection products serve as essential financial safety nets designed to help households manage unexpected financial shocks. These typically encompass three main categories:
- Life insurance – Provides payouts following death or terminal illness diagnosis
- Critical illness cover – Offers lump sum payments upon diagnosis of specified serious medical conditions
- Income protection insurance – Delivers regular payments when policyholders cannot work due to illness or injury
Market Functioning Well for Existing Customers
The interim results from the FCA's comprehensive competition review of pure protection products indicate that, for those consumers who have already secured coverage, the market generally operates effectively. The regulator noted several positive aspects including a diverse range of available products, generally successful claim processes when needed, and stable premium costs maintained over recent years.
Barriers to Wider Adoption
Research conducted by the FCA suggests multiple factors contribute to the significant protection gap. Primary obstacles include:
- Limited consumer awareness about their actual protection needs
- Insufficient prompts encouraging people to consider their insurance requirements
- Affordability concerns and payment capability issues
- Misunderstandings about product features and benefits
- Areas requiring improvement within sales processes
Regulatory Commitment to Closing the Gap
The Financial Conduct Authority has committed to exploring additional measures that could better support consumers in accessing appropriate protection. Graeme Reynolds, the FCA's director of competition and interim director of insurance, emphasised the crucial role these products play in family financial management during difficult periods.
"These insurance products play a vital role in helping families manage some of the most difficult experiences in life," Reynolds stated. "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."
Next Steps and Industry Engagement
The regulator has invited feedback on its interim findings until March 31, with a comprehensive final report scheduled for publication during the third quarter of this year. This collaborative approach aims to develop practical solutions that address the identified barriers while maintaining market stability and consumer confidence in protection products.
