By Sinead Cruise
LONDON (Reuters) – Britain's Financial Conduct Authority said on Wednesday it will launch a market review into sales of so-called pure protection insurance products amid fears that the design of some fee structures could lead to poor outcomes for policyholders.
Pure protection products are designed to help individuals and their families manage their finances if the policyholders are unable to meet their financial commitments, usually due to illness or death.
The study, which is expected to be launched in late 2024/25, will focus primarily on the sale of four specific types of products: term life insurance, critical illness cover, income protection insurance and some whole life insurance products that offer guaranteed acceptance for customers aged 50 or over.
The study is the latest example of the FCA's drive to crack down on consumer tax, and is likely to evoke memories of the mis-selling of payment protection insurance on loans, or PPI, between 1990 and 2010.
PPI was one of Britain's costliest retail financial scandals, with banks paying out around £40 billion ($52.9 billion) in compensation.
Pure protection insurance products are mainly sold through intermediaries such as independent financial advisers or mortgage brokers and around £4bn was paid out in claims against such policies in 2022, the FCA said.
“Pure protection can offer peace of mind and financial security, often at times when people are most vulnerable. Consumers should be able to buy products that meet their needs and provide fair value,” said Sheldon Mills, Executive Director of Consumer and Competition at the FCA.
“We have seen signs that this may not be the case in the pure protection market and we will act if we find that the market is not working well.”
The regulator said it wanted to explore consumers' understanding of the products they are buying, competitive constraints on insurers and intermediaries and potential conflicts of interest in the structure of commissions.
($1 = 0.7563 pounds)
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