Insurance Curator LONDON — The Financial Conduct Authority (FCA) has launched a comprehensive market study into the UK’s £4 billion protection insurance sector, investigating whether commission-driven sales models are harming consumers as data shows 58% of UK adults remain without any form of life or income coverage.
The investigation, announced late last year and intensifying through early 2025, focuses on "pure protection" products, including term assurance, critical illness cover, income protection, and whole-of-life insurance. The regulator expressed concern that current distribution practices and high commission levels may be inflating premiums and preventing the "protection gap" from closing.
“Pure protection can be the difference between a family staying in their home or facing financial ruin if a primary earner dies or becomes ill,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA. “We have seen examples of commission structures that may lead to poor value for money and could be influencing the advice consumers receive.”
The move comes under the framework of the FCA’s Consumer Duty, which requires firms to provide evidence that their products offer fair value and positive outcomes for customers. Regulators are specifically examining "loaded premiums," where intermediaries increase the cost of a policy to secure higher commission payouts.
Industry data indicates that while the market is essential for financial resilience, a significant majority of the population lacks a safety net. According to recent figures cited by the FCA and industry analysts, approximately 58% of UK adults do not hold any protection insurance, a statistic that has remained stubbornly high despite the rising cost of living and increased mortgage debt.
The FCA’s probe is analyzing whether the lack of transparency in commission payments is a primary driver for the low uptake. In some instances, commissions for brokers can exceed 100% of the first year’s annual premium, a practice the regulator suggests may incentivize "churning"—the act of moving a client to a new policy primarily to generate a new commission fee.
"The design of these products and the way they are sold must be focused on the needs of the consumer," Mills added. "We are concerned that the current competitive landscape is focused on the wrong things, potentially leading to higher prices and products that do not meet consumer needs."
The Association of Mortgage Intermediaries (AMI) has acknowledged the scrutiny, stating that while the industry provides vital advice, it must adapt to the higher standards of the Consumer Duty. Robert Sinclair, Chief Executive of the AMI, noted that the industry needs to demonstrate the value of advice while ensuring that "the cost of that advice is transparent and fair."
The market study is also exploring the dominance of a small number of large insurers and whether the current system prevents smaller, more innovative firms from entering the market with cheaper, digital-first products.
The FCA is expected to publish an interim report on its findings later this year, with a final report and potential regulatory interventions, including commission caps or mandatory disclosure rules, expected by the first half of 2026.
For now, the regulator has warned firms that they must not wait for the conclusion of the study to improve their practices. Companies found to be in breach of Consumer Duty standards regarding fair value may face enforcement actions, including fines or requirements to provide restitution to affected customers.