The Financial Conduct Authority (FCA) has announced a widescale review of the pure protection market, including commission structures, product churn and loaded premiums, to establish how well the market is working.
The financial industry regulator, the Financial Conduct Authority (FCA) raised concerns about the pure protection insurance industry last year, prompting a review.
FCA Executive Director, Sarah Pritchard, said:
“Consumers rely on pure protection to provide an important safety net, often when they are at their most vulnerable be it through bereavement, illness, or injury. We are determined to ensure the market is working well and delivers good outcomes for consumers by testing it or suggesting improvements.”
Concerns have already been raised about the mis-selling of ‘whole of life’ policies, where customers were unaware that their premiums could increase over time or that the level of cover they were paying for could decrease. This practice has led to many policies becoming unaffordable and customers having to cancel their insurance.
Now, the FCA is shifting its focus to loaded commissions and premiums as part of its broader sector review.
What are the issues with loaded commissions and premiums?
+ −The FCA is trying to ensure that financial products in the protection insurance sector are fit for purpose and offer ‘fair value’ to customers. Insurers and intermediaries should always act in customers’ best interests, in line with the FCA’s Consumer Duty rules introduced in 2023.
The terms ‘loaded commissions’ and ‘loaded premiums’ refer to situations where consumers are asked to pay more for their insurance policy to increase the broker or intermediary’s commission and to pay for their ongoing training. It is believed that the loaded fee could be as much as 15 to 30 per cent of a monthly premium.
A fairer way, which would provide more value to the customer, would be to use the additional premium to lower the cost of the policy or provide them with extra benefits.
Unsurprisingly, the FCA is concerned that unscrupulous intermediaries are incentivised to recommend certain insurance products that maximise their commissions rather than meet a customer’s needs or provide good value.
Some financial advisers want the practice of loading premiums banned, saying that clients may not even realise they are paying for a loaded premium and that its purpose is not being explained clearly. As an insurance company determines the level of loading to a premium, some brokers may not even realise they are receiving it.
What else is on the FCA’s radar?
+ −The FCA has said:
“We have seen examples of intermediaries encouraging customers to switch unnecessarily (e.g. to a product that does not meet their needs as well or that provides poorer value) to earn repeat commission.”
This suggests that there is ‘product churn’ in the industry purely to boost intermediaries’ commissions, which the FCA believes impacts fair value to customers.
The FCA will also look at ‘over-50s’ life insurance policies, as they have seen examples where the total premium paid over an average lifetime is much greater than the amount paid out, typically at least 50% greater. This is another huge area of concern for the industry, as many affected people may be vulnerable customers.
The review is expected to last many months, with initial findings and proposed next steps published by the end of 2025.
TLW Solicitors’ point of view
+ −Sarah Spruce, Legal Director at TLW Solicitors, says:
“Loading premiums is a disgraceful practice that allows financial institutions to charge consumers more than they need to pay. Consumer Duty was a welcome introduction by the FCA, as the primary aims are to ensure that end consumers are fairly treated and get value for money.
My specialist financial mis-selling team and I will be keeping a close eye on this review, which affects the whole protection insurance market, and expect to see more in the news about fees and commissions. As these initial signals from the FCA suggest, there is much work for the Regulator to do regarding the potential mis-selling across the whole sector, including ‘whole of life’ and ‘guaranteed acceptance over-50s’ policies.
Many protection insurance policies are held for years, even decades, so the premiums paid add up over time and mis-selling could affect consumer outcomes. Mis-selling claims can result in premiums being refunded, plus interest.
I would encourage anyone who is concerned that they or a loved one may have been mis-sold a policy, on the basis that it was unsuitable for their needs, the terms were not explained clearly, or it included loaded premiums, to get in touch with our mis-selling specialists for a free, no-obligation review.”
Protection insurance mis-selling claims specialists
+ −TLW Solicitors specialises in consumer claims and has expertise in taking compensation claims to financial institutions and the Financial Ombudsman Service (FOS). FOS is the independent, government-backed body set up over 20 years ago to settle disputes, such as mis-sold pure protection insurance policies.
We operate on a ‘no-win, no-fee’ basis and provide a free, confidential, and no-obligation initial assessment of your case. If you are eligible to make a claim, we will handle it from start to finish, ensuring you peace of mind and saving you time.
We understand the legal and financial jargon used, as well as the claims and appeals processes. Even if you took out the policy decades ago or have little paperwork to hand, we can help.
Get in touch
+ −If you are concerned that you or a loved one was mis-sold whole of life insurance, term assurance, critical illness cover, or income protection insurance, please call us on 0800 169 5925 or complete one of the forms below.
It is important to get advice as soon as possible, as strict time limits apply.
Minimum claim values apply.
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