FCA finds pure protection insurance gap a ‘persistent challenge’

Chris Riach, an insurance regulation expert at Pinsent Masons, was commenting as the regulator published its final report following a review into how the distribution of pure protection products in the UK operates.

The regulator launched a market study into the pure protection market in March 2025 to examine the distribution of pure protection products such as life insurance, critical illness cover and income protection amid indications that distribution arrangements may not be functioning as effectively as intended. The market study was also tasked with assessing whether consumer outcomes align with consumer duty and Product Intervention and Governance Sourcebook (PROD) requirements.

According to earlier research, the FCA estimates that 58% of people do not hold any of these protection products, while 59% of those without cover have never considered the need for this type of protection.

The FCA said it wanted to understand better both the magnitude of this perceived “protection gap” and the underlying causes of it.

Following initial findings (47 pages / 715 KB PDF) published earlier this year, the FCA’s final report (40 pages / 607KB PDF) identified that competition in the sector was generally working well, with a wide range of products available on the market and high claim acceptance rates.

However, the report also highlighted that low awareness, limited product understanding and behavioural biases combined with firm-side factors, including complex underwriting, delays in medical evidence, unclear communications and limited product availability for consumers with more complex needs, continue to limit opportunities for consumers to engage with these types of products more broadly, particularly when they are navigating critical life events. The regulator said that consumers with pre‑existing medical conditions and self‑employed or gig economy workers were particularly vulnerable to these challenges.

The regulator says it has joined forces with partners from industry, government, trade associations and consumer groups to increase public awareness of the pure protection products available, particularly for those groups that have historically lacked this type of protection, including renters, the self-employed and gig economy workers.

At the firm level – the supply-side – the FCA proposes to undertake a ‘TechSprint’ to bring together firms and stakeholders to test technology and data‑led solutions that have the potential to be scaled up to reduce challenges facing consumers to engage with these products more widely.

The regulator is inviting expressions of interest in the TechSprint from firms and other stakeholders by 13 November 2026. It also proposes to run a “myth‑busting” webinar in the first quarter of 2027, aimed at clarifying regulatory expectations and giving firms greater confidence to innovate, while continuing to deliver good consumer outcomes.

In respect of improving price and quality outcomes, the FCA said it had identified “a handful of smaller issues” where it believed “targeted action could prevent harm or deteriorating outcomes”. These “smaller issues” related to pricing and commissions, including so called ‘loaded premiums’, restricted panels, guaranteed acceptance over 50s policies, unnecessary switching, and the value of income protection.

Riach said firms would be encouraged by the FCA’s findings, but that the report emphasised the ongoing challenge facing the sector posed by the protection gap. “The report makes clear that the regulator sees the ‘protection gap’ as a persistent challenge, particularly for consumers who may be less likely to engage with protection products or who face barriers in accessing such cover,” he said. “Rather than introducing new rules, the regulator has opted for a programme of targeted interventions designed to improve awareness, simplify the customer journey and encourage innovation.”

Riach also highlighted the findings for over 50s products as particularly notable. “While for many years the over 50s market has come in for considerable criticism, this report highlights the key role these products can continue to play when marketed correctly, particularly when a customer is seeking greater flexibility than a funeral plan” he said.

The FCA also used the report to remind firms of the existing requirements and good practice under the consumer duty and its product governance rules. The regulator said it would continue to take either supervisory or enforcement action where firms fall short of regulatory requirements.

The proposed FCA-led and industry-wide initiatives are scheduled to begin in October with advanced progress expected over the next 12-to-18 months. The FCA intends to publish an update on delivery and progress by the end of 2027.