The FCA has published its Final Report on the distribution of pure protection products, bringing welcome clarity for advisers, insurers and consumers. While the regulator identified areas for improvement, one of the most significant outcomes is what it has not proposed: a move away from commission-based remuneration towards the adviser charging model used in the retail investment market.
Protection Market Found to Be Working Well
The FCA concluded that competition in the pure protection market generally delivers good outcomes for consumers. The regulator highlighted a wide range of available products, strong claims acceptance rates, stable premiums and claims ratios that are generally above 50%.
Rather than focusing on fundamental issues with pricing or remuneration, the FCA’s primary concern is the UK’s “protection gap”, with many consumers either uninsured or underinsured against risks such as death, critical illness and loss of income.
Commission Structures Remain Under the Spotlight, But Survive Regulatory Scrutiny
A key area of the market study was the FCA’s examination of commission arrangements, including so-called “loaded premiums”, where higher intermediary commission may be reflected in the customer’s premium.
Following extensive analysis of protection policies across the market, the FCA found no evidence that existing commission arrangements are causing widespread consumer harm or consistently leading to poor pricing outcomes. The regulator stated that loaded premiums do not, on average, result in higher premiums for consumers and that current remuneration structures can deliver fair value where firms properly assess and evidence consumer outcomes.
Importantly, the FCA confirmed that it does not see a need for market-wide intervention on commission structures and rejected calls from some stakeholders to ban loaded premiums or introduce additional disclosure requirements.
No Move Towards Adviser Charging
For advisers operating in the protection sector, the report provides reassurance that the FCA is not seeking to replicate the post-RDR investment advice model, where adviser charging largely replaced commission.
Instead, the regulator has accepted that commission remains an established and effective method of remunerating protection intermediaries. While firms must continue to demonstrate compliance with Consumer Duty and PROD 4 fair value requirements, the FCA’s findings suggest that existing commission-based distribution models can continue where they support good customer outcomes.
This is particularly important in a market where commission often enables consumers to access advice without facing an upfront fee. At a time when the FCA is seeking to narrow the protection gap and encourage more people to consider protection needs, preserving access to commission-funded advice may help avoid additional barriers to engagement.
What Firms Should Do Now
Although the FCA has ruled out broad regulatory intervention, firms should not view the report as a relaxation of expectations. The regulator has reminded insurers and intermediaries that they must be able to demonstrate that their remuneration and distribution arrangements provide fair value and support good customer outcomes under the Consumer Duty.
Firms should therefore:
- Review commission and distribution arrangements as part of their fair value assessments;
- Ensure remuneration structures do not create incentives for unnecessary policy switching;
- Maintain robust evidence showing how customers receive value from the product and the advice or services provided; and
- Consider the FCA’s examples of good practice when assessing consumer outcomes.
The final report is a positive outcome for the protection sector. The FCA has undertaken a detailed review of pricing, commission and distribution models and has concluded that the market is broadly working as intended. Crucially, it has stopped short of imposing an adviser charging framework similar to that seen in the investment market.
For protection advisers, the message is clear: commission remains acceptable, but firms must be able to clearly demonstrate that their remuneration arrangements support fair value and positive customer outcomes. As Consumer Duty continues to shape regulatory expectations, the focus is increasingly on evidencing good outcomes rather than prescribing how firms should be paid.
How Complyport Can Help
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