The FCA, on 29 January 2026, published its interim report on Market Study MS24/1.4 into how pure protection products are distributed to retail customers. The Market Study scope included term assurance, critical illness cover, income protection and whole of life, including guaranteed acceptance over 50s plans.
Overall, the FCA’s evidence indicates the market delivers good outcomes for people who already hold protection, with high claims acceptance and low complaint levels. However, it highlights areas where the market could work better. Notably it highlights closing the protection gap and improving monitoring metrics to better counter commission structures which can incentivise unnecessary switching. The FCA also notes the claims ratios of income protection products are notably lower than other pure protection products.
Firms will note the FCA does not propose utilising interventionist remedies such as commission caps, banning products or pricing interventions. Instead, the FCA’s proposed remedies focus more on collaboration with industry and improved monitoring.
In this article
What does this mean?
Overall, the FCA’s evidence suggests the market is delivering broadly good outcomes for people who already buy protection. It points to a wide range of products and distribution routes, high claims acceptance and comparatively low complaints. Claims ratios are generally around 50% or higher, though they vary by product, with income protection notably lower (around 40%).
On competition and pricing, the FCA highlights significant price dispersion, driven by product complexity, risk-based pricing and differences in product features. Consumers appear price-sensitive, and insurers’ projected margins look modest overall.
The FCA did not find evidence, on average, that “loaded premiums” (where higher commissions are negotiated between insurer and intermediary to feature on a restricted panel) result in higher prices for consumers compared with non-loaded policies. It also found premiums are broadly similar on average between restricted panels and whole of market sales. However, the FCA underlines that distribution arrangements and commission must not undermine fair value, choice or outcomes under PROD and the Consumer Duty. Specifically restricted panels should not act to block potential new entrants to the market.
The report recognises the central role intermediaries play. The FCA highlights protection is often “sold, not bought”, and consumers tend to engage after life events (buying a home, having a child, bereavement), and advisers help navigate complexity, underwriting and product comparisons.
Commissions
The FCA notes firms are alive to commission-related conflicts and use controls to manage this (distribution quality management, clawback, network policies such as commission equalisation/caps). It did not see evidence of high intermediary profitability overall, although it flags that some practices in parts of the market (including poor-quality sales leading to higher lapses and commission debt write-offs) require continued monitoring.
The FCA also states it cannot rule out that commission structures may incentivise unnecessary switching (“churn”) after the end of clawback periods. While the estimated scale of harm appears small, the FCA expresses a desire for better collection, monitoring and reporting of switching data. It intends to work with the industry on proportionate metrics to deter churn and improve oversight.
Protection gap
One area of significant focus for the FCA is the protection gap. The FCA highlights how many people who could benefit from pure protection products do not hold cover. The FCA sets out the following drivers for this within the report:
individuals who have never considered taking out pure protection products not being prompted to do so
concerns around affordability of products
individuals not understanding products and finding them too complex, despite having previously considered purchasing a product
challenges in individuals accessing products due to pre-existing medical conditions.
The report signals the FCA’s desire for coordinated action across industry and other stakeholders to solve this issue. Proposed remedies include greater use of prompts/trigger points and exploring whether extending targeted support, could have positive impacts in the protection market.
Claims experience
The FCA notes good practice amongst certain firms at the point of sale. It points to some intermediaries placing policies in trust and setting up wills and power of attorneys to improve customer claims experiences. The FCA is considering ways to encourage such behaviour further, including the use of good and poor practice guides.
Income protection
Income protection stands out in the FCA’s interim findings because it has the lowest claims ratio across pure protection products—around 40%, compared with c.50% or higher for most other products. However, the FCA notes certain mitigants for this (morbidity risks, variable claims values and durations, increased cost of sale and claims administration costs).
The FCA acknowledges falling income protection premiums may impact the claims ratio but sets out its intention to re-examine this topic prior to publication of its final report.
Summary
Overall, firms will likely be pleased with the FCA’s conclusion of a market generally delivering good outcomes for consumers. Even where the FCA highlights market elements which could work better, it is committing to working with firms in a collaborative way.
This report also reflects a continuation of regulatory principles we’ve seen consistently from the FCA in recent times; plans to address the protection gap, for example, align with the growth agenda and focus on consumer understanding. Similarly, focus on the claims ratio of income protection products are clearly related to fair value, with the FCA’s proposed next steps rooted in the familiar request of improved MI. Likewise, the same is true for the topic of commissions incentivising unnecessary switching.
What do firms need to do?
Work with the FCA to consider what actions will have the most impact in narrowing the protection gap.
Consider how targeted support could play a role within the pure protection market.
Assess what additional data could be used by the FCA to consider potential concerns on income protection claims ratios, and product switching by intermediaries.
Firms should plan to engage proactively with the FCA’s collaborative approach. Such ways to do so could include:
contributing evidence
sharing best practice
submitting views in response to the FCA’s request for feedback
helping shape any industry-wide work ahead of the final report.
As part of this, firms may have already conducted work on the protection gap, including research or surveys. Sharing such resources and knowledge with the FCA will be key in helping tackle this industry wide problem.
The FCA acknowledge the potential of expanding targeted support to the pure protection market. Firms, especially those who may offer pension products and are implementing targeted support, should engage with the FCA on this.
Commission incentivised switching and the claims ratios of income protection products will receive focus from the FCA between now and the final report. However, firms should note the FCA’s open minded stance here, acknowledging there may not be widespread issues relating to these. The FCA would like to see improved metrics and data on these topics, to allow for improved diagnosis of potential concerns. Firms should begin considering data which could be useful in helping the FCA assess this.
Next steps
The FCA is seeking feedback on the interim report by 31 March 2026 and will run stakeholder workshops in spring 2026. It plans to publish its final report in Q3 2026, including any agreed programme of work and further supervisory expectations.
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