"We note that Business Protection & Key Person Cover remains outside the scope of the study. Whilst not being volume business, and almost 100% intermediary distributed, they’re fundamentally the same as Term and CI products."
- Protection Distributors Group (PDG)
Last year, the Financial Conduct Authority (FCA) announced its intentions to launch a market study into how pure protection insurance products are sold, following concerns that competition is not working well in the market.
Coincidentally, Aviva completed its acquisition of AIG Life UK for consideration of £453mn less than six months before the regulator announced these competition concerns.
READ MORE: Aviva completes AIG Life UK acquisition
At the time, the provider said it’d decided to scrap AIG Life’s core individual & group protection products but planned to bring “elements of the AIG Life proposition to Aviva.”
Emma Astley, Founder of CoverMyBubble Ltd, said she was “absolutely gutted and shocked Aviva have not taken on part of AIG Life’s proposition, especially the bump, childbirth defects and children’s cover. Very frustrating for advisers who want to give their customers the best cover and premium options.
“Aviva is so highly priced within our market and others offer so much more for young families. Very disappointing. I filled in a very detailed survey on what we as advisers would like, and looks like nothing has been taken on board, what was the point?” Emma added.
Moreover, Royal London also completed its acquisition of Aegon UK’s individual protection business in 2024. “The acquisition helps bolster our overall position in the protection market, allowing us to strengthen our support for advisers and customers,” explained Carrie Johnson, Protection Director at Royal London, at the time.
READ MORE: Royal London completes acquisition of Aegon UK’s individual protection book
On behalf of the Protection Distributors Group (PDG), Neil McCarthy welcomed the FCA’s intention to finally examine protection specifically and not “lumping it in with General Insurance (GI).” The group believes this is the first time any UK financial regulators have done such a review since 1986.
READ MORE: Why hasn’t the protection market been reviewed by UK financial regulators since the ‘Big Bang’?
Last month, the industry watchdog launched a protection market study, which will primarily focus on the sale of four products – Term Assurance, Critical Illness Cover (CIC), Income Protection (IP), and Whole of Life (WOL). The FCA has confirmed that Private Medical Insurance (PMI) is out of scope, as well as funeral plans and Accident, Sickness & Unemployment (ASU) products.
Initial findings and any proposed next steps will be published by the end of 2025.
READ MORE: FCA launch protection market study
The PDG has welcomed the inclusion of “broader protection environment activities involving reinsurers, portals, and product comparison platforms in the way they influence the market,” but accepts this isn’t the focus of the market study.
“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 Protection & Key Person Cover remains outside the scope of the study. Whilst not being volume business, and almost 100% intermediary distributed, they’re fundamentally the same as Term and CI products,” it said.
The FCA has confirmed the market study will examine whether the structure of commission encourages advisers to suggest switching that may not be beneficial for customers. To which, the PDG said that commission itself, including indemnity commission, is an appropriate way to remunerate intermediaries, and sustain intermediation and specifically advice in protection.
However, it agreed that “insurers loading premiums on order to pay selected networks and distributors higher commissions need to be investigated to ensure fair value. And we feel that, 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,” the PDG concluded.
