The FCA protection market study has delivered a verdict that advisers can reasonably read as a vote of confidence: the regulator found that the distribution of pure protection products is, broadly, working well. Claims acceptance rates remain high, product choice is broad, more than half of premiums are ultimately returned to policyholders through claims, and new business volumes have held steady. For a market that has operated under increased scrutiny across financial services, that is a meaningful finding.
What the FCA has chosen not to do is equally worth noting. The regulator found no evidence of market-wide harm from loaded premiums or restricted panels, identified no widespread fair value concerns in income protection, and concluded that existing rules remain the primary regulatory tool. Monitoring, not intervention, is the preferred approach going forward.
The protection gap: where the FCA protection market study places its weight
The regulator’s real concern lies elsewhere. According to the FCA’s own data, 58% of people hold no pure protection product, and of that group, 59% say they have never considered their protection needs at all. That scale of disengagement is the central challenge the study has surfaced, and it is one that no amount of product improvement or commission reform will resolve on its own.
Kevin Carr, managing director of Carr Consulting and Communications and a director at Protection Review, frames the distinction plainly. The problem is not that consumers are buying the wrong products. Too many are not buying anything at all, or face barriers before they even reach that stage. That shifts the conversation from conduct risk to access and awareness, which is a different kind of problem for advisers to address.
The FCA’s planned programme includes industry initiatives, consumer awareness campaigns and improved educational resources, with advisers expected to play a central role in narrowing the gap between consumer need and consumer action. Carr argues that success over the next 18-24 months will be measured by the profession’s ability to increase awareness and help more clients understand the risks they face without adequate cover.
Commission, loaded premiums and what the FCA left in place
The study did identify three areas warranting further attention: claims ratios, which vary across protection product types; switching incentives, where the regulator noted that intermediary commission structures could encourage unnecessary policy changes; and claims experience, where it believes intermediaries can do more to support customers at the point of claim. None of these translate into immediate new rules.
On commission more broadly, Carr takes a pragmatic position. A commission ban, he argues, would largely destroy the market and produce the opposite of what the FCA is trying to achieve, since most consumers will not pay a standalone fee for protection advice. Distribution costs are front-loaded, and current commission structures reflect that reality. What matters, in his view, is transparency: client communication must be clear and justified from the outset.
The continuation of loaded premiums is more nuanced. Carr acknowledges the debate but argues that if adviser firms can consistently evidence better consumer outcomes while charging a slightly higher premium, and if that rationale is communicated transparently, the practice does not necessarily represent a consumer detriment.
Intermediaries carry the weight of distribution
The adviser channel’s centrality to this market is not in question. According to Grant Thornton, around 80% of pure protection sales in 2024 used an intermediary, across a wide variety of distribution business models. That dominant share means any strategy to reduce the protection gap will lean heavily on adviser behaviour, conversations and reach.
For portfolio-focused readers, pure protection sits outside the investable universe but directly inside the financial-planning conversation. A client approaching retirement with inadequate life or income protection cover carries a risk that no amount of asset allocation can fully offset. Sequence-of-returns risk is a familiar concern in drawdown planning; an uninsured health event carries its own version of that shock, arriving without warning and outside any portfolio model.
The FCA protection market study has, in effect, handed advisers a mandate: the distribution model is sound, the rules are stable, and the gap that remains is one of consumer engagement rather than regulatory failure. Carr’s call for longer-term thinking is well placed. The FCA’s stated areas for further work, covering the protection gap, claims ratios, switching incentives and claims experience, will continue to be monitored rather than legislated, which gives the advice profession time and space to lead.
