Insurance specialists have hailed the Financial Conduct Authority’s “overdue” review into the protection market but have warned about potential unintended consequences.
The review, which was announced today (August 28), will look at the protection market to understand how it is working by exploring consumer engagement with, and understanding of, the products they buy.
Protection Guru founder, Ian McKenna argued the review is “long overdue” as “very few of us are still working in the industry who were actively advising for several years before the introduction of the 1986 Financial Services Act".
“I cannot remember any time in the intervening period where such a detailed review of the protection market has taken place. “
McKenna added there are “obviously” areas that would benefit from regulatory attention and that there is a case for saying the protection market currently operates more efficiently in most areas than it has ever done over the past 38 years.
He additionally pointed out that many advisers have yet to implement the full changes required by consumer duty, especially when it comes to basing recommendations on value rather than price.
“This review gives them the opportunity to provide more clarity around what they really require,” he said.
A similar sentiment was shared by Broadstone head of life and health, Cara Spinks, who said the FCA is delivering a “firm” message to the industry.
“This investigation into the distribution of protection products is focused on commission arrangements, fair value for consumers and competition in the market,” she explained.
“These products provide viral cover for policyholders in the case of death and serious illness or injury, delivering protection at a vulnerable or stressful period in people’s lives.
“Ensuring the market is providing a fair and competitive service to policyholders is central to the regulator’s consumer duty objectives.”
Unintended consequences
However, McKenna warned the FCA to “tread very carefully” to avoid well-intentioned but unintended consequences.
As an example, McKenna pointed to the fact that, “for the first time in living memory”, the industry is seeing a “real boom” in the sales of income protection products.
“It has taken years of hard work to achieve this, and it will be crucial not to do anything that might upset this transformation,” he said.
A similar note of caution was expressed by CIExpert director, Alan Lakey, who said: “The FCA needs to understand the difference between churning and rebroking.
“Churning is switching a policy for no reason other than the advisers commission benefit, rebroking is where a plan - usually a critical illness plan - is switched to widen the scope of the cover and/or add other benefits unavailable with the existing plan.
“This is often as a result of a review process which fits in with the FCA consumer duty requirements and value-for-money ethos.”
