The FCA’s recent report on the UK Pure Protection market presents a broadly positive picture of the sector and its ability to deliver good outcomes for customers. It also sets out several challenges that firms will need to address as the market develops. In this article, Thistle Initiatives’ Matt Horton examines the findings and explores those challenges in more detail.
The FCA’s interim report on the UK’s Pure Protection market gave a generally positive overview of the health of the market. Overall, it concludes that the sector is broadly delivering good outcomes for customers, having observed high claims acceptance rates, stable premiums and above average levels of customer satisfaction, showing the sector is functioning effectively. It further observed the vital role of intermediaries being woven throughout the ecosystem, helping consumers navigate the product landscape that can feel complex, technical and difficult to benchmark.
The report, however, also highlights several challenges that must be addressed for the market to achieve its full potential and drive broader consumer protection. Noticeably among these, the FCA observed a “well-documented” protection gap, a substantial proportion of UK customers who would benefit from life, critical illness or income protection cover but remained uninsured. It was noted that many simply had not considered their needs, others, however, were deterred by affordability, perceived product complexity or complications arising from pre-existing conditions. As a result, a wide segment of the population remains exposed to financial vulnerability in the event of illness, incapacity or bereavement.
The FCA noted that whilst most Pure Protection products offer fair value, there was a discrepancy in the findings surrounding income protection. It was observed that lower-than-average claims ratios and inherent uncertainty in the product type have prompted the regulator to refresh its assessment of updated market data. Additionally, while it was noted that the FCA acknowledges that most intermediary practices support good consumer outcomes, it raises concerns about isolated, but noticeable issues arising from policy switching post clawback, and examples of low-quality phone-based sales models that have resulted in significant clawback write-offs. These pockets of poor practice underline the importance of ongoing oversight and robust governance across the distribution chain.
The report also recognises the steady march of innovation across the sector, from advances in underwriting technology to hybrid digital advice models and improvements in data-driven decisioning. However, structural frictions persist. Price sensitivity, reinsurer caution, and constraints imposed by portal standardisation can inhibit innovation and limit the development of solutions tailored to underserved or higher-risk groups.
Importantly, the FCA is not proposing sweeping market-wide interventions at this stage. Instead, its focus is on targeted, proportionate measures designed to enhance consumer engagement and strengthen conduct across the distribution chain. These include:
The FCA’s approach reflects a balanced recognition of where the market is working well and where thoughtful, evidence-based enhancements can protect consumers without constraining choice or discouraging innovation.
As the landscape evolves, firms will need to continue strengthening their Consumer Duty frameworks, enhancing product governance, and ensuring that distribution models remain aligned with fair value expectations and customer needs.
We will be monitoring developments closely as the FCA progresses towards its final report in Q3 2026. Should you require support assessing the implications for your firm, whether in relation to distribution oversight, switching practices, fair value assessments, or protection gap strategy, our team is on hand to help.
Matt is a seasoned compliance professional with a proven track record of leading regulatory strategy and governance across multiple financial sectors. He has held senior roles, including Head of Compliance at his previous firms. Matt brings deep expertise in designing and implementing three lines of defence compliance frameworks for organisations operating in insurance, electronic money institutions (EMI), credit, and mortgage broking. His experience extends to board advisory, where he provides strategic oversight on risk management and regulatory adherence.