With the recent news that the FCA has published the launch of its market study into pure protection in the hope that further clarity will be provided, industry experts and professionals have shared their thoughts and views below.
Commenting on the terms of reference Ian McKenna founder and CEO of multi award winning technical information and research analysis service of Protection Guru said : “It’s good to see the FCA identify the specific areas they will be exploring under this review and clarify the areas to be excluded.
“By concentrating on the mainstream Term, Critical Illness, Income Protection and Whole of Life products the FCA are recognising where there are significant opportunities for change and innovation.
“We are particularly pleased to see that the Review will not look at the assessment of fair value in isolation but examine this alongside cross cutting obligations under consumer Duty. We also applaud the decision of the FCA to examine fair value in the context of the quality of services and the overall price consumers pay.
“Day in, day out, we see situations where consumers can be offered products that are significantly higher quality for just a small additional outlay over the cheapest product, we see this shows where fair value assessment can deliver far better consumer outcome than the pre-Consumer Duty approach which favoured the lowest cost.
In the context of today’s announcement, we believe our work released earlier this week to highlight how identify how selecting best value for consumers can bring additional revenue to advisers to offset the extra work Consumer Duty necessities shows why advises need research tools capable of analysing Term and Income Protection as well as Critical illness, rather than just having data tables that they need to review and analyse manually.
“It is also encouraging that the regulator has acknowledged that advice firms have mechanisms in place to avoid bias that could be attributed to commission. While the regulator has said they will investigate these mechanisms in more detail, it’s good to see the regulator listening and learning from processes adviser already have in place.”
Andrew Gething, managing director of MorganAsh, said: “The FCA’s market review looks set to address many of the known harms the sector has been aware of for a long time.
“As expected, commission remains a hot topic – as we have seen in the car finance sector. Consumer groups have long cited commission bias as a cause of consumer harm. While the industry argument that the protection gap would widen without commission does have merit – particularly for less exciting products like life insurance – it’s up to firms to evidence in their outcome reporting that any detrimental impact of commission bias is minimal and/or reducing, especially for vulnerable cohorts.
“The sector is responsible for many good outcomes and the FCA recognises this in its updated terms of reference. However, these products are most needed when clients are at their most vulnerable. With the FCA’s recent vulnerability review identifying that many firms are still unable to monitor or take action on outcomes for this cohort, the sector needs to demonstrate that is looking beyond just those who claim and is alive to the challenge for all customers.
“Across all areas – particularly customer vulnerability management – robust data is absolutely critical and the best defence in meeting the regulator’s requirements – particularly Consumer Duty. With quality management information, firms will hopefully be able to demonstrate that any poor outcomes that are identified in the review are at least low or shrinking.”
Paula Betram-Lax, Chief Operating Officer at LifeSearch comments: “The FCA has taken significant steps to understand the market structure and engage with stakeholders. In their observations and revised terms of reference, they’ve listened to us and other stakeholders, particularly how we might better serve all consumers, not just the healthy ones, and encouraging innovation and practices to make protection more accessible and better value, particularly for those with vulnerable characteristics.
The FCA have pointed out several key positives where our sector is performing well, such as low level of FOS complaints, high claims ratios and how healthy lives are better served. We welcome and look forward to supporting the FCA in exploring and challenging how the entire distribution chain can provide greater transparency and clarity, and proven fair value.
We believe that commission does have a positive role to play, however certain structures may not always work best for consumers. It’s important for us all to be transparent in what the customer is receiving in terms of products and services (including advice and non-advice) and clearer fair value in the premiums that they pay.
We look forward to the continuing to engage with FCA and to the interim report in eight months’ time.”
