Unpacking the FCA’s Pure Protection Market Study

Introduction, Kimberley Dondo   00:00 – 00:30

Hello and welcome to the first episode of the Money Talks podcast, brought to you in collaboration with Mortgage Strategy and Royal London. In today’s episode we are taking a closer look at the shifting landscape of the protection market following the FCA’s recent Pure Protection Market review. To help us unpack the review I’m delighted to be joined by Gregor Sked, Senior Protection Development and Technical Manager, from Royal London. 

Kimberley Dondo   00:31 – 00:45
I'm joined by Gregor Sked from Royal London. He has been on this podcast so many times but in case some people are new listeners, Gregor, do you want to give an introduction into yourself and what you do at Royal London?

Gregor Sked   00:46 – 01:18
Yeah, becoming a regular, which is an interesting thought there. Thanks for having me back. So, I'm part of Royal London's protection technical team. So, we're here to really try and help advisers put protection on their agenda. And it's a very broad role. We cover everything from your high-net-worth protection solutions right down to some of your maybe more day-to-day conversations with your mortgage clients and everything in between. So, we're really here to help advisers have that protection conversation in the most impactful way.

Kimberley Dondo   01:19 – 01:44
Yeah, and today we will be looking at the Pure Protection Market study. So, I wanted to start by saying the Pure Protection Market study has been described as a signal, not an intervention. So, what do you think the FCA is signalling to the market right now? And where should advisers’ focus be in the next 12 to 18 months?

Gregor Sked   01:45 – 04:00
It's an interesting observation referring to it as a signal, not an intervention, but an interesting report for anyone that hasn't read it. It’s definitely worth the read. Actually, I think what their signalling just now, I think looking back for decades, I would say regulation has been very focused on pensions and investments.

Protection’s often been overlooked. I'd say maybe around the PPI scandal has often highlighted some of the harm that potentially could arise from insurance. So it has often been a bit in the background. Even post 2005 when we saw a lot of regulatory changes, protection was still often treated as a bit transactional rather than outcomes driven as we see today. Consumer Duty was a huge shift. We saw that as a real decisive shift in the industry, and it's now judged on outcomes and fair value throughout the whole lifecycle. So, I think what we've seen from the FCA's Pure Protection Market report is they're not coming after the market with punitive measures. They've actually got a very broadly positive report. But I think one thing is quite clear on the point you make about it being a signal, not an intervention, that protection certainly delivers value. I think there's a massive perception and engagement gap, which is really what I think their signal is leaning towards. So, anyone that's dealt with the protection industry for any length of time, you'll realise that what they've discovered is a protection gap isn't a new problem. The protection gap's been around for decades. But I think the fact that the FCA are now using very similar language is a very positive indicator. In the previous report, it was very little to no mention of the protection gap, whereas now it's almost very central to what the FCA are looking at taking forward. So that signal that you mentioned, I think’s really to do with that engagement gap. How do we close that engagement gap?

We saw in the report 58% of UK adults have no protection. 59% of those have never thought about their protection risks. And I think we can see that as a huge vulnerability for much of the country, not just something that's a commercial issue. It is a massive vulnerability issue. I think that's probably one of the reasons why it feels more like a signal rather than an intervention.

Kimberley Dondo   04:01 - 04:22
Yeah, and the FCA's concern seems squarely on mass market vulnerability to life shocks rather than the niche estate planning scenarios. So, what's the single most effective way advisers can build protection into everyday planning conversations?

Gregor Sked   04:23 – 06:54
So this is something that I get asked a lot on a daily basis is, how do we make protection work within our business? And the simple answer is you have to find a process that works for you. There's no point trying to put a square peg into a round hole. You've got to find a process that works for you and fits best within your advice. And I think that is quite clear in the narrative that the FCA are talking about at the moment. But they are also addressing it in the fact that they are looking at how do life shocks impact ordinary households? So the mass market, we saw again as I mentioned a moment ago, 50% of UK adults hold no protection. But we are in an industry that the FCA have highlighted offers a lot of breadth of product range, it offers a lot of innovation, it offers a lot of choice. I think the issue is that people just aren't engaging early enough. And yeah, advisers are really central here, because again, the FCA have quite explicitly recognised that advice prompts action that consumers might or wouldn't otherwise take.

So, in terms of how do we make it more effective? Yes, it’s finding a process that works for you, but I think also some of the things that we've seen in the report is, refer to human outcomes. Start with human outcomes, not policy features. So, thinking about claim stories, lived experiences, have there been experiences of past clients that have maybe made a claim on a protection policy? Often that can be a lot more effective than really detailed technical explanations. And we often talk about behavioural changes as well, little nudges that can get clients to think slightly differently about their protection needs. So simple questions, what would happen if your income stopped for three months? Who gets paid and when? Also, if your pay cheque that you just received was your last pay cheque for the next three months, how would you feel? And I think all of that is quite simple steps to try and put protection on the agendas, but it does also quite nicely align with Consumer Duty as well. We're focusing on foreseeable harm because we're thinking of foreseeable harm now as something that is about leaving families exposed to regulatory risk. It's not just a missed opportunity, so it does tie really nicely into the Consumer Duty. I suppose what the report shows us or says is that advisers aren't doing a bad job. It's saying that too many people never get to have the protection conversation in the first place. That's, I suppose, really what the report is getting to.

Kimberley Dondo   06:55 – 07:57
Yeah, I think we had a previous conversation about, you know, talking about client outcomes and referring to actual anecdotes and stories of how certain protection plans benefited clients, and those stuck in my head as well when I was going through my own mortgage process last year and into this year as well. So, I think I came in already like prepared and understanding why, you know, like critical illness and all those things, income protection is so important. And that's what made me connect with it as opposed to just being told this is an additional product or something that will be beneficial. Especially because in the mortgage process it’s not necessarily something that is mandatory. So, you can always just be like, yeah, I'll get to it. But now I'm just like, no, there's so many stories out there. I don't want to be the one person caught out.

Gregor Sked   07:58 – 08:33
Absolutely, and it makes it real. And I think there's maybe a worry of advisers not having a story that will relate to a protection case that they've maybe dealt with in the past. And the industry is full of case studies, real-life case studies, where advisers can use those case studies, really pull on those to make it real. We are in an industry that is here to pay out claims, and I think that can often help overcome that misconception that we're not here to pay out claims, which is far from the reality and we saw that from what the FCA's report was addressing too.

Kimberley Dondo   08:34 – 08:50
And going back to what you mentioned about Consumer Duty and specifically the idea of preventing foreseeable harm to raise the bar, how does that raise the bar for protection advice across the whole client journey?

Gregor Sked   08:51 – 10:49
So I'm glad we're focusing on Consumer Duty again, because it feels like it's been, you know, brushed aside. We've learned to live with it and it's now part of our everyday life, which is great. But I think the fact that it's coming back to life with the, with the FCA's Pure Protection Market review is a good thing. I think before Consumer Duty, we probably all have a bit of an appreciation of protection advice, maybe meant suitability was considered at the point of sale. Post-Consumer Duty it is all about good outcomes. It's all about demonstrating good outcomes throughout the life of the client, the customer lifecycle. And the market review really does put a lens, that sort of Consumer Duty lens on it and it asks, and it looks at, are products delivering when it's needed? Are customers being supported? Is the value being realised, not just discussed briefly? And I mentioned it already, but foreseeable harm, I think is a clear thing that we've seen from the market study. And of course, that's a central part of Consumer Duty.

Families are increasingly found to be seen at risk of income loss or death and that is now a regulatory concern. In the protection context, foreseeable harm also doesn't just start at a point of a claim, it actually starts at the sale. If the structure of policy isn't right, if the harm is effectively already baked in at that point in time, whether that's the customer getting a mortgage with no protection advice or setting up a life policy that hasn't been written under a trust. You know, if we're not having that consideration at the beginning, the foreseeable harm is going to be built in right at the start. And I think that's why we're seeing claims experience, engagement and post-sale outcomes really feature quite prominently in the report. So it's quite scary, I think we're on two years from Consumer Duty, but it has helped move protection away from that being a ‘nice to have’ actually more into that regulatory priority. And I think the review that the FCA have published really shows what that looks like in practice.

Kimberley Dondo   10:50 – 11:14
Yeah, and the review highlights two sides of claims. What advisers can do at point of sale, so trusts, beneficiary nominations, wills, LPAs, etc, and providers' end-to-end claims performance. Where are we doing well and what still needs work?

Gregor Sked   11:15 – 12:56
So the headline stat is we are doing well. It was a very broadly positive report, as I say. I mean, the FCA highlighted that through the fact that it mentioned 98% of claims paid in 2024 and throughout the industry. I think that equates to about £5.3 billion for 275,000 families. So just some of the headline figures from the report. Those are quite exceptional figures. Those are really quite exceptional figures and that was recognised by the FCA and actually it's quite significantly higher than what we see across other insurance classes. So there are positives in there. We are doing well.

But again, something I kind of mentioned a second ago, and it stood out to me within the FCA's narrative is that good outcomes don't end at the point of the sale. And that's where the FCA are definitely going to be focusing a lot more on the use of trusts, beneficiary nomination, wills, lasting powers of attorneys, and looking at them as being not just an optional extra, but actually fundamental to the policy, the process, the advice working properly. And ultimately being part of being able to deliver value.

So, if we think about a policy, and I'm a strong believer that a policy will only deliver value if it pays to the right people, at the right time, with very minimal friction. And again, that's where things like trusts and beneficiary nomination playout a massive role and advisers have got a direct influence over this as well, and I think it's explicitly called out by the FCA. So, I suppose one way of looking at that is a protection policy isn't just going to fail a claim because of the product, it fails because the groundwork maybe wasn't done properly at the beginning. So, it really is about what we do right upfront to make it the best possible outcome, not just when that claim happens, if that claim ever happens.

Kimberley Dondo   12:57 – 13:15
And on income protection, the FCA seems to want a clearer articulation of value and better understanding. What should advisers change in how they explain income protection to clients?

Gregor Sked   13:16 – 15:17
So it's an interesting one because income protection was quite specifically brought out by the FCA report as something that is an area of looking at going forward. Income protection does have the lowest claims ratio, around about 40%. A few reasons for that – the long-term nature of the product, there can be some quite heavy capital requirements on it as well. But the FCA do recognise it as vital for resilience. And it’s an area that we talk a lot about is building the foundations of financial resilience has to start with protecting your income. I think the issue, what we've seen within the report is that it's understanding, not necessarily product complexity, but actually understanding the value the product brings. And in particular, what the report highlighted was a number of misunderstandings from consumers around things like deferred periods, definitions of incapacity, the availability of rehabilitation support, how income protection interacts with sick pay and state benefits. So, there's a lot of misconception and confusion around those particular areas of income protection. And again, these are areas where the insurance industry can help support advisers with that knowledge and that level of experience of dealing with arranging protection policies in such a way that it pays out when it's meant to.

I think a lot of this is really looking at taking that conversation away from the features and price towards, as I’ve said a few times now, outcomes. How do we make sure the policy pays out when it's meant to? And what's encouraging is that even though we are seeing ongoing financial pressures, we are still seeing generally a strong value towards income protection because of those real stories that advisers are using, lived experiences, and I think, it's what we're seeing from the report is, it's not an issue as to whether or not income protection is valuable, it's whether we're able to explain it clearly enough. So, I think that's where we're needing to try and position it a little bit better is showing some of those valuable aspects that it brings, not just that price and the features perspective.

Kimberley Dondo   15:18 – 15:39
Yeah, for sure. The FCA notes patterns around lapses after clawback but stops short of calling it widespread harm. So, what proportionate actions would you support to improve oversight without burdening good quality advice.

Gregor Sked   15:40 – 17:14
So I think this was an area that, pre the report, there was a fair bit of speculation as to how the FCA would tackle this particular area. And what the FCA are saying, they're not calling it widespread harm, but they are identifying particular patterns and thinking it's maybe worth exploring this when it comes to lapses and clawbacks.
I think the FCA approach here feels very proportionate from what they've initially recommended and suggested. So, I think what they're really saying is that there are patterns, they're not rushing to conclusions. And of course, any formal response in the final report does need to be proportionate. So of course, the cost of any additional oversight, really needs to match the level of harm.

I think what the report initially asks and from the FCA's perspective, they are asking for the industry to collect, to monitor and report better data on switching to make sure that switching, as a particular example, is actually being driven by consumer need rather than a financial remuneration perspective. They are considering using existing rules, introducing new guidance, and even some metrics to deter that type of churn. Some suggested ideas have included individual reference numbers for protection advisers and actually mandating reporting of lead generators. But again, we are yet to see what those final outcomes will be in the report. But I think the initial suggestions that they made are fairly proportionate. I guess the highlight here is the FCA isn't being accusatory. It is asking for better evidence and again proportionate responses where it’s needed.

Kimberley Dondo   17:15 – 17:30
Yeah. And finally, if commissions scrutiny isn't the headline and customer value and outcomes are, how will advisers and providers need to evidence value, especially where commissions are higher?

Gregor Sked   17:31 – 19:14
Yeah, so again, another area where I think there was a lot of initial scepticism around how the FCA would tackle this. I'm going back to something you mentioned earlier, the FCA isn't setting up a commission intervention, to keep that theme going. They are certainly signalling towards stronger expectations around how do they demonstrate value when it comes to commission.

I think the review does confirm that protection advice delivers strong outcomes, but too many people are still being missed out. Some of the practical steps as far as probably could be taken, embedding protection into every planning conversation that they're having, using some of those behavioural nudges, some of those real stories, shifting that focus from price to outcome. Treating things like we've said before, trusts, beneficiary nomination as standard, not as optional. Clearly evidencing how the advice supports resilience, how it supports long-term value and using a lot of those annual reviews that, as far as what we're doing, to identify potential changes where protection maybe now needs to be discussed, or maybe needs to be reviewed, and again making sure it's all been documented. From a provider perspective I think looking at the strength of claims performance, again continually making to make sure that there's fair value assessments being produced and looking at a lot of the service MI as well, which is an area where I think we'll probably see some focus on.

Ultimately, none of this is new. Consumer Duty brought out a lot of this as well and I think what we're seeing with that market review is just emphasising what the Consumer Duty was initially expecting. So, I think the review is not asking the advisers to change what good looks like. It's actually just asking us to do more of it and do it more consistently as well, so there's again positives within that.

Kimberley Dondo   19:15 – 19:23
So as we are wrapping up now, Gregor, do you have any final thoughts or anything else you wanted to mention?

Gregor Sked   19:24 – 20:42
Just to briefly highlight the point that it’s important to remember that this is all still an interim report. The FCA’s final conclusions aren’t due until Q3 this year, but the regulator has been very clear that it wants to keep engaging with the industry before deciding what comes next. And also against the backdrop of the report, I think it will be really interesting to see whether concepts like the targeted support features are going to be mentioned in the report. We’ve already seen targeted support being introduced within the industry and I think there is a strong argument that if it’s designed carefully, extending that thinking into protection could be one way of helping to close that engagement gap. But that again, would feel very consistent as well with where the FCA’s current direction is going around the fact that it’s moving away from big rule changes towards using things like Consumer Duty and supervision to really drive better outcomes. So, I think summarising what we’ve looked at today, the Pure Protection Market review does fit squarely into that approach. It’s evidence based, proportionate and it’s about focusing on outcomes rather than, as we said earlier, intervention for its own sake. So, for advisers the message I would say is not wait and see what happens, its keep doing the right things because I think that’s what exactly we want to see the final report build on.

Kimberley Dondo   20:43 – 21:00

Yeah, and I like leaving on that message, keep doing the right things. But thank you so much for speaking with me today, Gregor. As always, this conversation, our conversations are always so enlightening, and I look forward to all the other conversations we'll be having throughout the year.

Gregor Sked   21:01 – 21:02
Thanks, Kimberley, me too.

Outro, Kimberley Dondo   21:03 -
That brings us to the end of today’s discussion. A massive thank you, once again to Gregor Sked for joining us and offering such clear guidance on navigating the FCA’s evolving expectations.

For those of you who want to dive deeper into the details we have discussed today, you can find further resources on the Pure Protection Market study by visiting the Royal London website. Thank you for listening to this episode of Money Talks and we’ll see you in the next one.