Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

FCA gives protection market 12-18 months to improve take-up

The Financial Conduct Authority (FCA) has given the protection market 12-18 months to make "meaningful progress" on improving the take-up of policies and consumer outcomes. Its final report on the market study into the distribution of pure protection products found that distribution and competition generally worked well for consumers, but that 58% of people remain unprotected.

No market-wide intervention

The regulator said it would not introduce market-wide measures, but would take supervisory or enforcement action where needed. It rejected stakeholder suggestions to mandate protection discussions or auto-enrol consumers, saying this would be "disproportionate and could encourage a tick-box approach". Instead, it will work with stakeholders to improve penetration, with the programme beginning by the end of the year.

Why the protection gap persists

The FCA found the lack of protection was mainly due to low consumer awareness and limited product understanding, as well as people's biases. Friction in the customer journey, complex underwriting and limited availability of products for people with complex needs were also affecting take-up. The regulator found limited evidence that regulation was contributing to the protection gap, though some providers felt regulatory barriers discouraged innovation.

Working with industry bodies

On the distribution side, the FCA will work with organisations including the Association of Mortgage Intermediaries (AMI), the Digital Property Market Steering Group (DPMSG) and the Money and Pensions Service (MaPS) to ensure more people have protection. It will also run a TechSprint to encourage providers to innovate in product design and complex underwriting.

Advisers praised

The FCA said it was "encouraged" by mortgage advisers prompting clients to consider protection when purchasing related products, such as a mortgage. It commended practices such as making consumers aware of the risks of failing to keep up with mortgage payments, or of unexpected circumstances such as illness, death or income loss. It also praised advisers for informing clients that relying on current earnings to pay their mortgage could reduce financial resilience.

Distributors are being encouraged to collect and share data on where consumers were first prompted to consider protection, so the FCA can monitor the effectiveness of this strategy.

Switching under watch

The FCA noted that commission structures could incentivise advisers to encourage clients to switch policies at the end of the clawback or indemnity period, creating risk if consumers end up with the same coverage at a higher price or insufficient coverage. However, it said the costs of tying clawback periods to commission agreements or introducing individual reference numbers to track advisers would "not be proportionate given the relatively small number of policies affected by unnecessary switching".

It reiterated that not all switching is harmful and said there was not enough evidence of harm to warrant market-wide intervention. The regulator will continue to monitor switching and has asked the sector to keep sharing information on "bad actors" so it can take action.