"We’d like to see the FCA encourage advisers to engage with their clients more regularly for the right reasons."
- Emma Thomson - Protection Distributors Group
Last week, the FCA called on the insurance industry to do more to help customers avoid being under-protected in its Pure Protection Market Study interim report.
While the report found that the pure protection market does generally work well for those who already have protection, it also revealed that 58% of adults still do not have any form of pure protection insurance. This is despite the fact that many could benefit from this kind of cover, with research suggesting that this gap is largely caused by a lack of awareness among consumers.
The Protection Distributors Group (PDG) has issued the following statement by its chair, Emma Thomson, on the FCA’s Pure Protection Market Study interim report:
"It is encouraging that the FCA’s overarching conclusion of its Pure Protection Market Study interim report is that our market is mostly working well for customers. Complaints are low, acceptance rates are high and paid claims benefit hundreds of thousands of customers every year.
"Yet the 'protection gap' remains a concern, with 58% of adults having no protection cover in place, and 59% having never considered their protection needs. Among those with cover, 72% of customers’ needs remain unmet, highlighting widespread gaps in their existing coverage. The key reasons for this were cited as affordability, eligibility and lack of awareness.
"Effective adherence of the Consumer Duty should help address this issue. Many consumers have not considered their protection needs because they’ve not been made aware of the risks or solutions available. If all advisory firms, regardless of specialism, ensured clients had access to proper protection advice, either in-house or through signposting, it would help to reduce the protection gap.
"With the FCA reporting that 91% of consumers are unable to access financial advice, we are encouraged that it’s re-considering its decision not to include protection within its Targeted Support policy. If this is reversed, it could help more consumers access protection products. Government also has a part to play here.
"The FCA highlighted the issue of reviewing cover and churning policies. The PDG takes the view that these are two distinct activities: Churning involves arranging like-for-like cover primarily to generate more commission, and reviewing cover ensures it remains suitable and enables advisers to re-evaluate customers’ unmet needs.
"We acknowledge the FCA’s concerns but believe there are simply not enough good reviews currently being undertaken. We’d like to see the FCA encourage advisers to engage with their clients more regularly for the right reasons.
"We expected a different conclusion regarding loaded premiums and maintain our position that they can lead to poorer customer outcomes. We’d like to see greater transparency of these arrangements, as advisers are not always aware they are recommending policies with loaded premiums. We have shared these views with the FCA.
"It was positive to see the FCA highlight some intermediary firms going further at the point of sale to support good outcomes at claims stage. The review rightly mentioned the value of Wills and Power of Attorney, which many consumers don’t have. Advisers can make a real impact in this area by making their clients aware of why these should be considered.
"Trusts are also important, but there is still more that could be done to simplify the process. Beneficiary nomination is a good alternative for applicants with less complex situations and we’d like to see more insurers offer this as an option.
"Overall, the FCA’s review has the potential to drive positive change by highlighting issues that need continued focus and encouraging industry wide collaboration. The PDG’s objective is to improve customer outcomes through working with others and we look forward to supporting the FCA and its working groups in the future.”
