The Financial Conduct Authority has issued a significant call to action for Britain's insurance sector, urging providers to help more households access vital financial protection products. According to the regulator's interim findings, a concerning protection gap exists across the nation, with more than half of all adults currently without any form of pure protection insurance.
Understanding the Protection Gap
Pure protection products serve as crucial financial safety nets designed to support individuals and families during life's most challenging moments. These typically encompass three main categories: life insurance, which provides payouts following death or terminal illness diagnosis; critical illness cover, offering lump sum payments upon diagnosis of specified serious conditions; and income protection insurance, delivering regular payments when policyholders cannot work due to illness or injury.
The FCA's comprehensive review indicates that for those who have already secured protection insurance, the market generally functions effectively. Consumers benefit from a diverse range of products, stable pricing structures in recent years, and generally positive claims experiences when assistance becomes necessary.
Barriers to Protection Uptake
Despite these positive market characteristics, the regulator has identified several significant barriers preventing wider adoption. Research suggests many consumers remain unaware of their actual protection needs and rarely receive prompts to consider them. Additional obstacles include affordability concerns, misunderstandings about product features and benefits, and potential improvements needed within sales processes.
Graeme Reynolds, the FCA's director of competition and interim director of insurance, emphasised the importance of these products, stating: "These insurance products play a vital role in helping families manage some of the most difficult experiences in life. While competition in the market is mostly working well for consumers, many more people could benefit from protection."
Industry Collaboration Required
The regulator has committed to working closely with insurance providers to develop solutions that address this protection gap. Reynolds added: "We will work with industry to reduce this gap, to help consumers navigate their financial lives." This collaborative approach aims to enhance consumer awareness, improve product accessibility, and ensure more households can benefit from financial security during difficult periods.
Industry representatives have welcomed the FCA's findings and expressed commitment to addressing the identified challenges. Dr Yvonne Braun, director of policy, health and protection and long-term savings at the Association of British Insurers, commented: "We're pleased the FCA has recognised that the pure protection market delivers for customers by offering a wide range of products, stable prices and high claims acceptance rates. These findings are especially important as life insurance, critical illness cover and income protection insurance remain vital financial safety nets."
Next Steps and Consultation
The FCA is currently exploring additional measures to better support consumers and has invited feedback on its interim findings until March 31. A final report containing comprehensive recommendations is scheduled for publication during the third quarter of this year, potentially shaping the future direction of protection insurance in the United Kingdom.
Dr Braun further emphasised the industry's commitment, stating: "The FCA has rightly recognised that a protection gap remains, and that many more people could benefit from the peace of mind and security that protection insurance offers. This is a key concern for our sector, and we look forward to working with members and the regulator to address it."
