Amid an array of regulatory concerns, including worries about how consumers are being treated, the U.K.’s Financial Conduct Authority (FCA) is planning to launch a review of insurance distribution.
On Wednesday, the FCA said it would be undertaking a market study that examines how certain insurance products — including whole life, term life, critical illness and income protection — are being sold.
These products, which are primarily sold through independent advisors in the U.K., paid out about £4 billion in claims in 2022, the regulator said.
Yet, the regulator is worried about how consumers are faring in this market.
“The FCA has concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders,” it said, such as providing incentives for advisors to encourage needless switching to generate repeat commissions, along with premium markups that can drive added commissions.
Poorly-designed commission structures “may incentivize firms to push products that are not consistent with a consumer’s needs or do not meet them as well as another product would do,” the regulator said.
The FCA signalled that it’s also concerned that certain products may offer poor value to consumers, such as “if the total premiums paid over a lifetime far exceed the maximum conceivable payout.”
The regulator is worried about possible eroding competition in these markets too.
“If the market is not functioning well and competition is not working effectively in the interests of consumers, the potential harm to policy holders and their dependents may be significant,” the FCA said.
In response, the regulator is planning a study that will examine industry commission structures, potential conflicts of interest and competitive dynamics between insurers and distributors.
“Consumers should be able to buy products which meet their needs and provide fair value. We have seen indications that this may not be the case across the pure protection market and we will act if we find that the market is not working well,” said Sheldon Mills, executive director of consumers and competition at the FCA, in a release issued Wednesday.
The FCA study is expected to launch later this year.