Practical Protection

Practical Protection

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Episode 5 – FCA Protection Paper

Hi everyone, I have been taking at look at the recent paper from the FCA, that has been written to give an initial view of how the industry works, the players in it, potential consumers and outcomes from accessing insurance.

Overall I think the paper was really well written and gave an accurate portrayal of the industry. It was clearly written and not too long, so I would recommend giving it a read if you can. I’m not a data lover, but, they did have some stats in the paper that really stood out and I think are brilliant examples of how intermediaries are in this space.

The key takeaways:

  • In 2023 individual protection insurance claims totalled £4.85 billion.
  • 97% of income protection sales are advised, we’re doing an amazing job!
  • Key focuses of the review are going to be ensuring effective competition, addressing the protection gap for vulnerable consumers, assessing influence of distribution channels on consumer outcomes, and reviewing commission and broking practices.

Next time Alan is going to be back with me and we are going to be talking about arranging protection insurance for people living with neurofibromatosis.

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors PlannerX.

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PPP – S11 – Ep5 – FCA Protection Paper

Kathryn Knowles  00:12

Hi everybody. I am back. It is season 11, Episode Five, and today I’m going to be talking about the recent FCA paper on the protection, market strategy and structure review and my thoughts on it and the different things that were in there, this is the practical protection podcast you

 

Kathryn Knowles  00:40

so obviously, none of you will know, because this happened early today, but some of you may notice, in general, that we have a new puppy, and I tried my hardest to do a recording of this earlier today, and I must have got between. I’m still about 25 minutes in, and I just had to give up. Here just being making so much noise. And it was one of those things where I just I couldn’t figure out whether or not I was going to be making sense, or whether or not I felt I was making a lot of sense, but I’m thinking, but is that going to sound like sense to everybody else? So I thought I’ve just got to put this behind me and say, you know, this is a bad job. Don’t do this again. So I’m recording this on a nighttime which is very unusual for me, but Alan has puppy, said puppy in another room, and hopefully I won’t get disturbed, but you never know. And the two youngest children are on sleepovers, so fingers crossed, there will be no interruptions.

 

So the FCA, the Financial Conduct Authority, have been doing a market study, and they’ve produced sort of an initial report, which is the MS two, four forward slash 1.3 structure of the UK pure protection market for retail customers. Now, what’s really, really lovely, because obviously, whenever there’s any kind of reports, and especially regulatory types of things, often you look at them, it’s, they’re absolutely massive. The terminology is really intense, and it can take a few cities to get through it. Now, what I would say is that this report really isn’t too bad, and I say that in a really positive way, in the sense of it isn’t, you know, it isn’t huge to read, and it’s really clearly set out. It’s got some nice bullet points, some nice imagery, some nice data, some tables, things like that, split it up, and I thought it was quite, quite easy going to read. And maybe it’s just because I really know the market that I say that, but I think it’s a it’s not, it’s not undoable to read it and sort of come away from it and not feel completely drained, as can be the case sometimes with things.

 

So I’m just going to go through some of the highlights of the paper, in case you don’t have chance to read it, or just don’t feel like doing so yourself. And because there were some really key parts in it, and say, I’m not going to cover absolutely everything, but some really key parts that I thought, you know what that’s that is really interesting, and I think that should be looked into a bit more, and then also just things I thought, Do you know what? That’s actually a little bit of a pat on the back for us, protection people. So yeah, let’s get into it. So it starts off with an introduction talking about protection insurance, what it does and how it supports families and individuals in the UK and all of us as advisors. We’ve certainly come across people even who are arranging these insurances, who still don’t believe in them, who are still convinced that insurers are going to do everything not to pay out, and just are the worst of the worst. And what is really nice. So all the data in the report is pretty much from 2023 and so when I’m talking about it, please always think, yeah, it’s 2023 two years ago.

 

And so in it, the ABI was, um, was quoted, you know. So that’s the Association of British Insurers, um, stating that if the individual pure protection claims in the UK in 2023, 4.8 5 billion pounds was paid out in claims. I mean, that is a massive, a huge, huge amount of money. And what’s really important there is to say that’s individual pure protection claims. So we’re not talking about group business and so like your death in service benefits, your group income protections, things like that. We’re also not talking because this is saying pure protection. We’re not talking about your older kind of I don’t believe they’re talking about the older whole of life with investment aspects to them. And so there was also been payouts in that kind of regard as well. So huge. And then, and I think this sort of, like surprised me quite a bit, because we have, obviously, I’m at Cura, and we speak to well over 30 insurers when we’re helping people.

 

And what was really interesting is it said that 80% of the protection market is held and shared across five insurers. And I just found that absolutely amazing, because later on, I’ll talk a little bit about the annual premiums that are coming in and things like that for these different insurances. But obviously it’s incredible to think what. Those firms are bringing in, and how much they are contributing, obviously, in terms of the protection market in the UK. But then it also think, well, all those other firms that we use, especially not all of them, are super niche. Some of them are, but they’re making up that rest of the 20% and they’re still pretty big, you know? And but then it also makes it realize as well. Just even though we are talking about niche insurers, they are, they are niche insurers within a very, very niche market space as well. So it’s incredible that we that we have that and we have that kind of market, and that ability to have competition, and that is something that the FCA are looking at, as well as the ability for there to be competition, especially in the insurer space, and talking about, obviously, some of the changes that we’ve seen in that regard too.

 

So when they went then onto the product overview, they were talking about that, you know, the focus is pure protection, so no savings or investment elements. So your older whole of life policies, especially, especially those ones would have what’s known as a with profit element, or an investment aspect, to them, which, you know, essentially used to be along the lines. I’m going to make really, really random figures here, but you know, it would be something like, right? If you take out this life insurance policy for 20,000 pounds, and you pay into it and you die in the next 20 years, your family will get 20,000 pounds if you’re still alive at the end of it, then we’re going to give you, I don’t know, let’s say five grand back. Now, anybody who has actually worked in that, please. I have no idea if that five grand back is accurate, although at the right and I am just making up figures, just to sort of like, explain the kind of way that it works, in a sense. So you’d get some money back. So it did seem to sort of have that as I say, it would have a maturity value of some sort, and it might have been much more than five grand, or potentially that side, I genuinely don’t know. So that doesn’t happen. Now. Those policies are still active, but in terms of new policies, when you’re looking at these insurance policies, they don’t have those investment elements to them. So again, when the FCA looks at the ABI data in 2023 the average claim for life insurance was 54,600 for critical illness covers 67,300 and for income protection, 9400

 

Kathryn Knowles  07:16

and I found that all really, really interesting, especially that income protection data. Because for me, that claim the 9400 over an annual University period is very, very low. We would usually expect it to be much higher than that. So I was intrigued. This is sort of like, what all the, maybe all the policies are that are being included in that or whether or not that is the case, you know, I think most people would generally be ensuring more than that when it comes to income protection. But even if they’re not, that is brilliant. The fact that, you know, these policies are getting placed more and more so the life insurance and critical illness cover, again, was a lot lower than I would expect. But my Inkling is, and especially looking at those averages, is that that is probably a lot to do with the fact that we have lots of decreasing insurance, especially for mortgages. And by the time that people are usually at the ages, when claims are happening, their mortgages have reduced quite a bit. And naturally, if the insurance has been done sort of like coincide with that, that would be quite a lot lower too.

 

So the focus of the report is on your term assurance, so your life insurance that has a fixed end date. Critical Illness cover, standalone. Critical Illness cover, as mentioned, accelerated. Critical Illness cover, life and criticalness cover combined. Now I know I’ve been told this before. I have no idea why life and kit combined is called accelerated. Somebody has explained it to me. I just still don’t, personally, in my mind, think, well, accelerated in the English language doesn’t kind of equate to that same thing for me. But there we go. That’s just part of the terminology for that. And also covering the income protection hull of life in over 50s, they do talk about things like the rider benefits, so that would be your wave of premium year total parent disability. So things that can be, in a sense added on that are going to become contractual benefits, and then also the fact that we do have all the non contractual benefits now, which is your value added? So that’ll be things like your 24 hour seven days a week, access to GPS, mental health support, physio, those kinds of things. Just talk very briefly about the fact that there’s now beneficiary nomination as well as trust.

 

So because this is, like an initial paper, of them saying, Look, this is how the industry works, and this is what’s happening right now, it’s not commenting on anything. And just like I’m not going to comment on anything, particularly in terms of pros and cons, just going to give you the information that is there. So it was nice to see that they have made recognition of the beneficiary nomination, which more insurers are tending to try and offer so really, really nice and simple way online to sort of very quickly delegate where a claim is paid out for your client, which obviously is. Is exactly what want to happen if the claim comes in, we want to know it’s going to go to the right place. Now this next bit, I am going to be talking a few bits of data, so do forgive me, but this is all about the policies issued. And so this again 2023 so policies issued in 2023 versus policies that are in force in 2023 just for all time. So it doesn’t matter when they were set up. And I found this really, really fascinating. And I’m not usually a data person, but I found this really interesting. I’m really sorry if you don’t, because I will try not to speak on it for too long. But in 2023, 39,000 whole of life policies were set up. Now these are usually set up for funeral, benefit, for IHT, planning things like that. And then what was really quite fascinating for me, so that was the lowest out of all the policies that can be set up, the whole of life was the lowest amount, with 39,000 in that year. But when you look at all policies set up that were registered in registered as in the active in 2023, regardless of when they were set up, whole of life was by far the biggest amount of policies, with 7,947,000 so what that kind of seems to indicate to me, and I could be wrong, but bear with me as we talk through some of the other data is that obviously the whole of life seems to have gone out of fashion, and it might be starting to come on the open up again.

 

Obviously, there are lots of opportunities to be speaking about this, lots of times, especially at the moment, the way that they and the IHT barriers are kind of like sat that people are going into IHT levels without realizing it, especially if property values are going up soon, pensions are going to be obviously included as well. So that is something that people may not realize. To consider that as advisors, we should really try and make sure that they’re aware of so Yeah, huge amounts, but I think probably quite a lot of that will be the older policies. I might be wrong. Somebody within the insurers, please do let me know if I am wrong. But for there to be that many versus how few are set up in that year. It does seem to see that it is more something that has been done primarily in the past. And then on the other side of things, we have income protection. So income protection in 2023 247,000 policies were set up in that year for income protection. And then when you look at all the policies set up 2023 and before the total amount of active policies was 1,026,000 so a quarter of income protection policies active in 2023 from any time period. But basically they were set up in that year, which is is phenomenal to me. I mean, that’s obviously you’ll see from when I talk about the data later on. That is from a huge drive from advisors, which is just fantastic.

 

It’s absolutely phenomenal because income protection, I this is my personal opinion, and certainly nothing said in the FCA paper, and not necessarily representative of cura. But in my opinion, income protection for the majority of people is the most valuable protection insurance product that they can have. There are obviously caveats to that, but it is so, so phenomenally important, especially for those long term financial plans. And a quarter of that was done in 2023 and 23 and that is down to us advisors, the incredible work from the income protection Task Force as well. So I think that, for me, is a real pat on the back for protection industry and the advisors side of things. So good going everybody the paper then focuses. Obviously, there is a lot more data. Obviously there about all the different products and things like that, but they were the two ones the two ones the whole of life and IP that I was just I thought the data, the numbers, was really quite telling of a story. It then went on to the customer overview. So it was talking about what’s who’s peer protection for, obviously, it’s mortgages, mortgage owners, mortgage owners, homeowners with mortgages, even people who would maybe find it difficult if they were to lose their income, or if there was going to be disruptions at work, or things like that, if they’re potentially vulnerable due to their health and that long term ability to work.

 

And this next bit I really liked, actually, I’m going to say really like, I’m going to start off by saying I didn’t like this little bit, but I don’t think there’s anything else the FCA could have done in this regard. So it does refer to the facts of people in and I’m going to say in quotes, and sorry, bunny ear, quotation marks, healthy lives. I really dislike the term healthy lives, because the connotation is, is that they’re unhealthy lives. And I know that people will say, but how else would you term people who aren’t seen as healthy in the insurer’s eyes, and it’s really, really hard. So, you know, obviously it’s, it is just one of those things. There used to be some really derogatory terminology for people who weren’t what’s known straight through applications that I’m I really, really disliked. And so I started to say to people, Look, can you refer to them as quirky lives? I’m a quirky life. I’m not a straight through application. Not everybody be happy with quirky you know, we all have to go with what terminology feels right. But what I really liked is this, is that the the FCA, put healthy lives in little quotation marks, and then, instead of using any kind of derogatory terminology, they just said people with pre existing health conditions, which I thought was really, really nice. You know, there wasn’t any kind of negative terminology. It was just stating a fact. Of, you know, people with pre existing health conditions, sometimes they will have limited options. There could be price increases. I don’t think they necessarily discussed the potential of exclusions here and but, you know, it was worthwhile for them to mention it. They obviously mentioned, as well the over 50s, which can be very useful for some people when there’s certain ages, if they are really struggling for cover. And then a little bit further on, I was very, very, very, very happy, and made me smile to no end to see that they had said that intermediaries play a crucial role in the pure protection space, which is is obviously great to hear as an advisor, because, you know, it was saying that obviously, as advisors, we make a cost effective solution for insurers to get their products, obviously in front of clients and for clients and consumers, we take away a lot of that time and resource of having to do the research, of potentially applying for insurance and then being either rated or declined and not back, and then starting the process again. They did discuss a little bit about the advised versus non advised and the hybrid options as well. So advised means you are have somebody like myself who will say, right, these are your circumstances. I am telling you that you need without being that blunt, obviously, but I’m saying that the insurances that you need are x, y, z, and the best ones for you are over here with this insurer. Now non advised is where somebody goes to somebody, and obviously they’re not non advised. So they will say to somebody, these are my circumstances. I want this insurance. And a non advised salesperson will say, okay, I can get that for you with this insurer. So they can find it and they can source the insurances, but they just won’t give advice as to whether or not that’s the right insurance for that person. And then you have hybrid options where people maybe go down a non advised route, and then actually it does become quite complex. So they are moved to an advised or possibly what’s known as sign posted to an advised firm.

 

Kathryn Knowles  17:19

The FCA did recognize, obviously protection insurances, obviously life insurance does play quite a vital role in inheritance and tax planning. There’s obviously the complexity of the trust, the potential for lasting powers of attorneys, for wills. And you know that they have recognized, and they do specifically say that is very, very complex part of providing advice to consumers, which, again, was really lovely to read, because Protection Insurance has been given often a bit of like being put in the back burner. It’s a bit like I always say. It’s a bit like, seen as the annoying little sister of the insurance industry. And I can say that because I am the annoying little sister in my family. And it’s always been pensions and mortgages, in a sense, and they’re the ones that get all from training, from regulatory, from governing body kind of view, they tend to get more attention and pure protection, which, you know, is that is the way that it is. So it was just nice that the FCA have said, you know, this is, this isn’t just something that’s easy and should just be seen as quite simple to do. This is a very, very complex thing, and ultimately, as well, with the FCA, one of the key things is consumer duty, making sure that we are doing everything as right and as humanly possible for clients. And you know that certainly means when it comes to inheritance tax, inheritance planning, tax planning, things like that, it shouldn’t be particularly easy. It should absolutely look easy for the consumer, but from an advisor point of view, it should be tricky, because that is what we’re here for, to go around all of those complexities that that person and their families are facing.

 

Now, on page 10, there was a very, very interesting table, and it’s kind of goes back to what I was saying before about the income protection and how amazing advisors have done to get, like, a quarter of all policies written in 2023 and there was a couple here that, again, stood out for me. And I was thinking, I’m going to make a little bit of a suggestion here as to why this is I mean, one thing that really surprised me is that with whole of life, it’s going to be whole of life, it’ll be whole of life and IP I’m gonna be talking about again. So apologies, there are the other ones in there as well. But whole of life, 39% in 2023 was arranged on an advised basis, and 61% on non advised. Now I found that quite surprising. Now it might just be that most of those are a bit of like funeral benefit. People are going for quite small summer shorts, and they’ve just decided to, you know, do this instead of a funeral plan, or instead of an over 50s cover, which, you know, for some people, that might absolutely be sufficient for the needs. My key concern there is that people are potentially trying to set things like this up as as potentially sorting out their own. A perspective of what potential inheritance tax their families may face. So, you know, it is what it is. But you know, I do think that that’s I would have felt more comfortable if the majority of whole of life was advised versus going down a non advised route. And that is to say, when we’re talking on the non advised side of things, I’m not saying specifically, non advised sales people. I’m just that’s just saying that people have gone non advised. So that could be them just going direct as well. So that’s not a comment on my non advised colleagues, our peers. That is just the case of, right? That’s, that’s, that’s a very complex area, and things can go very, very wrong, especially with the trusts, incredibly wrong with the trusts, and make the inheritance tax even worse. So, yeah, I feel like that should be something that’s maybe looked at a little bit more. We then have the income protection side of things.

 

And what I absolutely love about this is that 97% of income protection was advised, and three was non advised. And the reason that that could be so high is because there are some income protection providers who only work with brokers. They don’t do direct to consumers. So you know that will obviously contribute to it. But my Inkling is, is that the reason that it’s 97% is because, without speaking to advisors, I don’t think people are necessarily really going for income protection that much themselves, and that also kind of fits in with the life and kick stats. So for life and critical illness, cover 82% was advised, versus 18% non advised. And the only thing I can say is just from my experience. So you know the amount of people who come to cure, or you know that I know I hear of as well with with other firms, and it’s always life insurance. I need life insurance, things like that. And then when you speak to them, they’ve either never heard of critical answer, income protection, or they just don’t think it’s right for them. And that might ultimately be the case that they, you know, it’s just not affordable to them, or it is just something that they just seriously do not want no matter how much you explain how important it is. So I think those really high percentages there are the fact that it is advisors and intermediaries are playing an incredibly vital role in getting those insurances in place for people. So next thing was all about market participants. So this was really about how, who are the players in this? So we’ve got stock insurers, we’ve got mutual insurers.

 

There’s a complex table on page 13 that you are welcome to look at. Obviously, it made me go completely cross eyed. It talked about the reinsurers, the networks, intermediaries, lead, generators, consumers, all these different types of things, and how kind of like the communications and the business processes work between them all, but essentially, when you look at things, you have your insurers, the reinsurers sit behind the insurers, and essentially they insure the insurers. You then have the intermediaries who sit between the insurers and consumers. You then have, obviously, you then also have sort of like the platforms that people comparison sites which go between the insurers and the consumers as well. You then potentially have lead generators sat somewhere amongst us, but not in every single aspect of it. I was a little bit confused on the table, because I felt like the table maybe seemed to indicate that, if you it, would go consumer lead generator, then intermediary, which isn’t obviously always the case, but it does depend upon how they are classifying those lead generators. Or maybe I just got a bit confused. You never know. It did talk about the need and obviously the position of specialist insurers as well. So your really high risk policies, your niche markets, your bespoke policies that are built for people, depending upon what is really when it comes down to it, they’re they’re much higher area risk of making a claim to the insurer.

 

It did talk a little bit about the role of underwriting, about the mortality and morbidity risks and how that is coordinated by insurers and reinsurers. And on table 14, Table five, I said this the last time I recorded this as well. It isn’t it’s page 14, and the table that’s on there, and they do talk about the annual premiums that are coming in per product. So it was saying that life insurance non related to mortgages, so that’s done differently. So life insurance that’s not related to any kind of mortgage is in the grand scheme of things, because I say that there are ways that it can be, but possibly wouldn’t show in that data. But just forgive me while I go off on a side tangent in my brain. But basically, life insurance that they’re not classing as related to a mortgage brings in about 318 million pounds of premiums within the UK, when it is mortgage related, that’s 188 million premiums. And the income protection is 102 million premiums that are being brought in in that kind of annual time period. Lots and lots of other things in terms of how the reinsurance. And insurers work, which is quite interesting. It’s said in a quite nice, simplistic way. If you do want to read into that, I know a little bit more. But again, going back to nice pat on the back for the intermediaries, it said that in terms of individual business, new individual and protection policies in the UK for 2023 88% was arranged by intermediaries, which is just fantastic, like we say, we are playing a crucial role and and it was nice to for the FCA to recognize that and to include that statistic.

 

And they do talk about, again, the roles of principals, so and principal network firms, ARS, appointed representatives directly authorized member firms, directly authorized independent firms, sorry, professional services firms, which be more like people who offer like compliance, support, training, things like that. And there was a few other things. It talks about the role of like comparison platforms and portals, potential underwriting and streamlining the processes. But now I was really, again, happy to see this, that it does talk about the straight through underwriting. Obviously it can reduce costs, which is potentially desirable to certain levels, but it did talk about the fact that, you know, it has that there is that concern it has been voiced to them, and it’s really good to see that they have noted it is that it obviously it can weak competition and competition because, you know, there are, if all insurance firms sign up to the same kind of underwriting application, it does reduce the ability to compete and for them to maybe have some specific niche risk areas that they’re prepared to do

 

Kathryn Knowles  26:43

more with than other other firms, but it also means that vulnerable clients as well can’t particularly use them. So if you’ve got straight through application software, which can work fantastically for a lot of people, there are certain times, though, where it won’t. So if it is, you know a site where you can put in application details, it’s going to give you all the details from loads of insurers at the end of one, go, brilliant. But it’s if someone has had cancer, if someone has had a heart attack, and if someone has had a stroke, anything where you know that they are going to ensure is probably going to want to see a report from the GP, then those sites aren’t going to work well for that person. It did discuss as well, very much the need for lead generation, where that takes place, how it’s done, but the fact that it must be ethical and comply with data legislation. There has been some, quite, quite a lot of concerns, and have been some people working fantastically in this space. I have done some podcasts on it before as well, if you want to go back and listen to any of the episodes and just about how there have been some people who haven’t been working exactly as you would want them to be working. And unfortunately, it has led to some really bad consumer outcomes. And also unfortunately, it has led to some firms having some very, very sad circumstances where maybe they have been drawn in by somebody who appeared to be a legitimate business partner, and then, unfortunately, that’s not the case, and it has, at times, forced firms to close, which is incredibly sad, because you’ve then got firms who were doing a really, really good job, who just so happened to then have a very, very unfortunate set of circumstances presented to them.

 

We then have as well that they talk a little bit about that post sale engagement, and I think that’ll be a really key factor as well, going forward with the FCA is sort of what happens in that servicing phase. How do we ensure that these policies remain relevant and useful for the people, especially as circumstances change with life events? And it does say, obviously, in terms of support, that usually on an advice service, you would tend to have more servicing support than a non advised. That’s not always the case, but that is what is indicated in the report. I’m not going to go through too much more, don’t worry and but just highlighting some more bits so market practices and it was talking about, you know, the fact that usually protection insurance is based upon age, smoker, status, health, the risk profile. It’s usually paid for monthly, and that the reinsurers are there to help the insurance, because they’ve got reinsurance have incredible amounts of data, decades of data that you know, they can say, right? If somebody is this age and they’ve had this condition, and this has happened, then actually they’re, on average, they are likely to live for the next, however, many years. And it’s ridiculous the amount of data they have, but incredibly powerful and knowledgeable, and they use that to help insurers to inform what’s known as their risk appetite.

 

So each insurer will have a. Different risk appetite as to what they are prepared to to accept, and it changes as well. And they will tailor that based upon market trends, different parts of the business and things like that. And they might be able to with some insurers if they have other areas that they work in, in the in the finance space, it might be that they can potentially have a little bit more risk appetite, because they have that ability to cope with any kind of unexpected, you know, if there’s some huge influx of claims and things like that. And so it’s really interesting. They have spoken about the FCA, about the role of re broking, about how, and obviously this comes down to the surfacing how this can be potentially beneficial to the client. So you know, you’ve done a policy for them for a mortgage that’s 200,000 but their new mortgage is 400,000 well, we might replace the policy with the new one, or do top up cover, but obviously it does present risk to the clients if you do replace a policy from an advisor point of view, I’ve spoken about this many, many times, just do as much as you can to highlight all the advantages and disadvantages. You do need to have to be aware of that. And also, you know that there is that thing of sort of looking when people are re broken. Is this to do with commission? So you know commission is going to be being looked at as well. It talks about indemnity, non indemnity, hybrid level commissions, renewal commissions, how commission sacrifice works, the fact that, you know, there was potential claw backs for two to four years and and I have to say, obviously, the FCA is looking at this book, you know, obviously for other firms as well.

 

The insurers look at it as well. If you suddenly, if you are a firm who’s re broken and you’re doing it for the commission side of things specifically, then you know, insurers are watching, well, hang on a minute this this firm seems to suddenly be canceling policies every two to four years. This is matching up with when our commission stops or when the claw back period has ended. And you know, it can put you in very bad books with the insurers. So it is just really important not to do that, and naturally as well, that’s just not always going to be the best route for the client. There is absolutely times when you will look at options for clients, and it just happens to coincide with that commission time period, and you need to do better options, fair enough. It’s just if you are doing it, obviously consistently. And that is something that the FCA, as say, is going to be looking at. They are looking at how Commission works as a whole. And what we would say is that, I know that there was a discussion about this many years ago about, do they still have commissions like obviously, they they took everything like that away from the pension space. You know, that would they do it in the protection space as well, and at the time previously, it was, you know, obviously debated. And one of the key elements with this is, is that if you, if you take away commission, then obviously you move every to a fee base. And unfortunately, that would put a huge part of society in a detrimental position. And you know, we have millions of people in the UK who have health conditions, many, many millions. And you know, if it was a fee based approach, you know, it would, it would be impossible to sort of ask a lot of people in that situation to pay a fee to be able to get the insurance, because quite a few of them are already experiencing situations where their incoming is inherently lower due to their health. And so it was seen at the time when it was reviewed before the commission would stay within the protection insurance space. I am hopeful, obviously, that, in a sense, that that will remain the case, because, you know, as I say, if not, it will significantly reduce the amount of people who have access to insurance, which is by the very nature would go against the FCA drive to, obviously, make sure that there is fair access to insurance. And obviously that level of consumer duty that we’re all trying to achieve.

 

They are planning as well on looking at the only one I didn’t mention at this point was loaded premiums. So they are planning on reviewing that area as well. They do talk a bit about the regulations and market developments. So the main ones are obviously the bottom consumer duty. There is something called prod four as well, and there is an ongoing consultation that is being done by the Law Commission into the legislation that is currently governing neutral insurers and friendly societies and HM Treasury have authorized that and requested that. So there might be some developments coming out soon in regards to that space, in terms of how the firms are able to operate, but that’ll just be very much a watch this space at the moment. And another thing that came down to, as I say, the fact of the competition in the markets. You know, in the last few years, in terms of individual protection, we have lost Canada life, Aegon, AIG and HSBC from the Protect. Space. So we are getting fewer and fewer competitors, which does mean, especially for potentially higher what’s known as high risk clients, or more vulnerable clients. It is potentially really narrowing their ability to get insurance, which, which is a real shame. So the next steps from the FCA, they’re wanting to ensure that competition is effective. They’re doing some surveys, and they’re just analyzing all of that.

 

At the moment, they do want to investigate that protection gap for vulnerable customers. You know, it is a really, really key area. I’ve obviously spoken with many charities, been involved in quite a lot of industry groups, and there is a huge call out, obviously, for support in this area. And just trying to make things as simple and straightforward for people as possible as I’m sure any advisor knows, things like GP reports are never the easiest things to get. So I think that there is going to be a look at everything and all of those processes. It does say specifically as well, though, that distributors are not the key focus, that intermediary firms aren’t necessarily exactly where the FCA has their focus. At this moment, they are primarily looking at insurers and consumers, but obviously, like intermediary influence on things like the portals, lead generators are going to be considered and reinsurer influence is going to be considered, too. And they have finished off by saying, you know, that they are definitely going to be looking at structures of commercial commission, arrangements, how panels work. So obviously, I didn’t mention this before, but they talked about single, tied, multi tide or Hall of market options,

 

Kathryn Knowles  36:38

and if, whether or not sort of like that re broken thing is being influenced by commissions as well, and if that’s ending up to client detriment. And then lastly, that market entry and innovation in the UK, we are losing insurers and just trying to make sure that everything remains as competitive and as relevant for today’s society as well making sure those products are still exactly where we need them to be. There are certainly areas of products that could definitely do with a revamp to make sure that they are relevant to modern society, in terms of medicine and in terms of consumer needs. And hopefully, fingers crossed, we’ll see all that, and this will be a really good first step. I really like this paper. I thought it was a very good, accurate representation of the things that they, FCA, are going to be looking at, and hopefully we’ll see some positive outcomes and suggestions going forward. Thank you for listening everybody. I hope that was okay. I always feel a bit strange when I do ones where they’ve got a bit of data, because I know if it was myself and someone was reading data out to me, I would absolutely switch off. So hopefully you’re still with me next time, Alan is going to be back with me and we’re going to be chatting about arranging protection insurance for people with neurofibromatosis. As always, please do feel free to get your web your CPD certificate from our website, practical protection.co.uk. And that is thanks to our sponsors, and I’m going to make sure I say the updated version now. So our sponsors planner X, they used to be next gen planners. They have updated to planner X, and I will see you all hopefully very, very soon. Bye, everybody. You you.

Transcript Disclaimer:

Episodes of the Practical Protection Podcast include a transcript of the episode’s audio. The text is the output of AI based transcribing from an audio recording. Although the transcription is largely accurate, in some cases it is incomplete or inaccurate due to inaudible passages or transcription errors and should not be treated as an authoritative record.

We often discuss health and medical conditions in relation to protection insurance and underwriting, always consult with a healthcare professional if you are concerned about any medical conditions and symptoms we have covered in any episode.

Episode 5 - FCA Protection Paper

Hi everyone, I have been taking at look at the recent paper from the FCA, that has been written to give an initial view of how the industry works, the players in it, potential consumers and outcomes from accessing insurance.

Overall I think the paper was really well written and gave an accurate portrayal of the industry. It was clearly written and not too long, so I would recommend giving it a read if you can. I’m not a data lover, but, they did have some stats in the paper that really stood out and I think are brilliant examples of how intermediaries are in this space.

The key takeaways:

  • In 2023 individual protection insurance claims totalled £4.85 billion.
  • 97% of income protection sales are advised, we’re doing an amazing job!
  • Key focuses of the review are going to be ensuring effective competition, addressing the protection gap for vulnerable consumers, assessing influence of distribution channels on consumer outcomes, and reviewing commission and broking practices.

Next time Alan is going to be back with me and we are going to be talking about arranging protection insurance for people living with neurofibromatosis.

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors PlannerX.

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PPP - S11 - Ep5 - FCA Protection Paper

Kathryn Knowles  00:12

Hi everybody. I am back. It is season 11, Episode Five, and today I'm going to be talking about the recent FCA paper on the protection, market strategy and structure review and my thoughts on it and the different things that were in there, this is the practical protection podcast you

 

Kathryn Knowles  00:40

so obviously, none of you will know, because this happened early today, but some of you may notice, in general, that we have a new puppy, and I tried my hardest to do a recording of this earlier today, and I must have got between. I'm still about 25 minutes in, and I just had to give up. Here just being making so much noise. And it was one of those things where I just I couldn't figure out whether or not I was going to be making sense, or whether or not I felt I was making a lot of sense, but I'm thinking, but is that going to sound like sense to everybody else? So I thought I've just got to put this behind me and say, you know, this is a bad job. Don't do this again. So I'm recording this on a nighttime which is very unusual for me, but Alan has puppy, said puppy in another room, and hopefully I won't get disturbed, but you never know. And the two youngest children are on sleepovers, so fingers crossed, there will be no interruptions.

 

So the FCA, the Financial Conduct Authority, have been doing a market study, and they've produced sort of an initial report, which is the MS two, four forward slash 1.3 structure of the UK pure protection market for retail customers. Now, what's really, really lovely, because obviously, whenever there's any kind of reports, and especially regulatory types of things, often you look at them, it's, they're absolutely massive. The terminology is really intense, and it can take a few cities to get through it. Now, what I would say is that this report really isn't too bad, and I say that in a really positive way, in the sense of it isn't, you know, it isn't huge to read, and it's really clearly set out. It's got some nice bullet points, some nice imagery, some nice data, some tables, things like that, split it up, and I thought it was quite, quite easy going to read. And maybe it's just because I really know the market that I say that, but I think it's a it's not, it's not undoable to read it and sort of come away from it and not feel completely drained, as can be the case sometimes with things.

 

So I'm just going to go through some of the highlights of the paper, in case you don't have chance to read it, or just don't feel like doing so yourself. And because there were some really key parts in it, and say, I'm not going to cover absolutely everything, but some really key parts that I thought, you know what that's that is really interesting, and I think that should be looked into a bit more, and then also just things I thought, Do you know what? That's actually a little bit of a pat on the back for us, protection people. So yeah, let's get into it. So it starts off with an introduction talking about protection insurance, what it does and how it supports families and individuals in the UK and all of us as advisors. We've certainly come across people even who are arranging these insurances, who still don't believe in them, who are still convinced that insurers are going to do everything not to pay out, and just are the worst of the worst. And what is really nice. So all the data in the report is pretty much from 2023 and so when I'm talking about it, please always think, yeah, it's 2023 two years ago.

 

And so in it, the ABI was, um, was quoted, you know. So that's the Association of British Insurers, um, stating that if the individual pure protection claims in the UK in 2023, 4.8 5 billion pounds was paid out in claims. I mean, that is a massive, a huge, huge amount of money. And what's really important there is to say that's individual pure protection claims. So we're not talking about group business and so like your death in service benefits, your group income protections, things like that. We're also not talking because this is saying pure protection. We're not talking about your older kind of I don't believe they're talking about the older whole of life with investment aspects to them. And so there was also been payouts in that kind of regard as well. So huge. And then, and I think this sort of, like surprised me quite a bit, because we have, obviously, I'm at Cura, and we speak to well over 30 insurers when we're helping people.

 

And what was really interesting is it said that 80% of the protection market is held and shared across five insurers. And I just found that absolutely amazing, because later on, I'll talk a little bit about the annual premiums that are coming in and things like that for these different insurances. But obviously it's incredible to think what. Those firms are bringing in, and how much they are contributing, obviously, in terms of the protection market in the UK. But then it also think, well, all those other firms that we use, especially not all of them, are super niche. Some of them are, but they're making up that rest of the 20% and they're still pretty big, you know? And but then it also makes it realize as well. Just even though we are talking about niche insurers, they are, they are niche insurers within a very, very niche market space as well. So it's incredible that we that we have that and we have that kind of market, and that ability to have competition, and that is something that the FCA are looking at, as well as the ability for there to be competition, especially in the insurer space, and talking about, obviously, some of the changes that we've seen in that regard too.

 

So when they went then onto the product overview, they were talking about that, you know, the focus is pure protection, so no savings or investment elements. So your older whole of life policies, especially, especially those ones would have what's known as a with profit element, or an investment aspect, to them, which, you know, essentially used to be along the lines. I'm going to make really, really random figures here, but you know, it would be something like, right? If you take out this life insurance policy for 20,000 pounds, and you pay into it and you die in the next 20 years, your family will get 20,000 pounds if you're still alive at the end of it, then we're going to give you, I don't know, let's say five grand back. Now, anybody who has actually worked in that, please. I have no idea if that five grand back is accurate, although at the right and I am just making up figures, just to sort of like, explain the kind of way that it works, in a sense. So you'd get some money back. So it did seem to sort of have that as I say, it would have a maturity value of some sort, and it might have been much more than five grand, or potentially that side, I genuinely don't know. So that doesn't happen. Now. Those policies are still active, but in terms of new policies, when you're looking at these insurance policies, they don't have those investment elements to them. So again, when the FCA looks at the ABI data in 2023 the average claim for life insurance was 54,600 for critical illness covers 67,300 and for income protection, 9400

 

Kathryn Knowles  07:16

and I found that all really, really interesting, especially that income protection data. Because for me, that claim the 9400 over an annual University period is very, very low. We would usually expect it to be much higher than that. So I was intrigued. This is sort of like, what all the, maybe all the policies are that are being included in that or whether or not that is the case, you know, I think most people would generally be ensuring more than that when it comes to income protection. But even if they're not, that is brilliant. The fact that, you know, these policies are getting placed more and more so the life insurance and critical illness cover, again, was a lot lower than I would expect. But my Inkling is, and especially looking at those averages, is that that is probably a lot to do with the fact that we have lots of decreasing insurance, especially for mortgages. And by the time that people are usually at the ages, when claims are happening, their mortgages have reduced quite a bit. And naturally, if the insurance has been done sort of like coincide with that, that would be quite a lot lower too.

 

So the focus of the report is on your term assurance, so your life insurance that has a fixed end date. Critical Illness cover, standalone. Critical Illness cover, as mentioned, accelerated. Critical Illness cover, life and criticalness cover combined. Now I know I've been told this before. I have no idea why life and kit combined is called accelerated. Somebody has explained it to me. I just still don't, personally, in my mind, think, well, accelerated in the English language doesn't kind of equate to that same thing for me. But there we go. That's just part of the terminology for that. And also covering the income protection hull of life in over 50s, they do talk about things like the rider benefits, so that would be your wave of premium year total parent disability. So things that can be, in a sense added on that are going to become contractual benefits, and then also the fact that we do have all the non contractual benefits now, which is your value added? So that'll be things like your 24 hour seven days a week, access to GPS, mental health support, physio, those kinds of things. Just talk very briefly about the fact that there's now beneficiary nomination as well as trust.

 

So because this is, like an initial paper, of them saying, Look, this is how the industry works, and this is what's happening right now, it's not commenting on anything. And just like I'm not going to comment on anything, particularly in terms of pros and cons, just going to give you the information that is there. So it was nice to see that they have made recognition of the beneficiary nomination, which more insurers are tending to try and offer so really, really nice and simple way online to sort of very quickly delegate where a claim is paid out for your client, which obviously is. Is exactly what want to happen if the claim comes in, we want to know it's going to go to the right place. Now this next bit, I am going to be talking a few bits of data, so do forgive me, but this is all about the policies issued. And so this again 2023 so policies issued in 2023 versus policies that are in force in 2023 just for all time. So it doesn't matter when they were set up. And I found this really, really fascinating. And I'm not usually a data person, but I found this really interesting. I'm really sorry if you don't, because I will try not to speak on it for too long. But in 2023, 39,000 whole of life policies were set up. Now these are usually set up for funeral, benefit, for IHT, planning things like that. And then what was really quite fascinating for me, so that was the lowest out of all the policies that can be set up, the whole of life was the lowest amount, with 39,000 in that year. But when you look at all policies set up that were registered in registered as in the active in 2023, regardless of when they were set up, whole of life was by far the biggest amount of policies, with 7,947,000 so what that kind of seems to indicate to me, and I could be wrong, but bear with me as we talk through some of the other data is that obviously the whole of life seems to have gone out of fashion, and it might be starting to come on the open up again.

 

Obviously, there are lots of opportunities to be speaking about this, lots of times, especially at the moment, the way that they and the IHT barriers are kind of like sat that people are going into IHT levels without realizing it, especially if property values are going up soon, pensions are going to be obviously included as well. So that is something that people may not realize. To consider that as advisors, we should really try and make sure that they're aware of so Yeah, huge amounts, but I think probably quite a lot of that will be the older policies. I might be wrong. Somebody within the insurers, please do let me know if I am wrong. But for there to be that many versus how few are set up in that year. It does seem to see that it is more something that has been done primarily in the past. And then on the other side of things, we have income protection. So income protection in 2023 247,000 policies were set up in that year for income protection. And then when you look at all the policies set up 2023 and before the total amount of active policies was 1,026,000 so a quarter of income protection policies active in 2023 from any time period. But basically they were set up in that year, which is is phenomenal to me. I mean, that's obviously you'll see from when I talk about the data later on. That is from a huge drive from advisors, which is just fantastic.

 

It's absolutely phenomenal because income protection, I this is my personal opinion, and certainly nothing said in the FCA paper, and not necessarily representative of cura. But in my opinion, income protection for the majority of people is the most valuable protection insurance product that they can have. There are obviously caveats to that, but it is so, so phenomenally important, especially for those long term financial plans. And a quarter of that was done in 2023 and 23 and that is down to us advisors, the incredible work from the income protection Task Force as well. So I think that, for me, is a real pat on the back for protection industry and the advisors side of things. So good going everybody the paper then focuses. Obviously, there is a lot more data. Obviously there about all the different products and things like that, but they were the two ones the two ones the whole of life and IP that I was just I thought the data, the numbers, was really quite telling of a story. It then went on to the customer overview. So it was talking about what's who's peer protection for, obviously, it's mortgages, mortgage owners, mortgage owners, homeowners with mortgages, even people who would maybe find it difficult if they were to lose their income, or if there was going to be disruptions at work, or things like that, if they're potentially vulnerable due to their health and that long term ability to work.

 

And this next bit I really liked, actually, I'm going to say really like, I'm going to start off by saying I didn't like this little bit, but I don't think there's anything else the FCA could have done in this regard. So it does refer to the facts of people in and I'm going to say in quotes, and sorry, bunny ear, quotation marks, healthy lives. I really dislike the term healthy lives, because the connotation is, is that they're unhealthy lives. And I know that people will say, but how else would you term people who aren't seen as healthy in the insurer's eyes, and it's really, really hard. So, you know, obviously it's, it is just one of those things. There used to be some really derogatory terminology for people who weren't what's known straight through applications that I'm I really, really disliked. And so I started to say to people, Look, can you refer to them as quirky lives? I'm a quirky life. I'm not a straight through application. Not everybody be happy with quirky you know, we all have to go with what terminology feels right. But what I really liked is this, is that the the FCA, put healthy lives in little quotation marks, and then, instead of using any kind of derogatory terminology, they just said people with pre existing health conditions, which I thought was really, really nice. You know, there wasn't any kind of negative terminology. It was just stating a fact. Of, you know, people with pre existing health conditions, sometimes they will have limited options. There could be price increases. I don't think they necessarily discussed the potential of exclusions here and but, you know, it was worthwhile for them to mention it. They obviously mentioned, as well the over 50s, which can be very useful for some people when there's certain ages, if they are really struggling for cover. And then a little bit further on, I was very, very, very, very happy, and made me smile to no end to see that they had said that intermediaries play a crucial role in the pure protection space, which is is obviously great to hear as an advisor, because, you know, it was saying that obviously, as advisors, we make a cost effective solution for insurers to get their products, obviously in front of clients and for clients and consumers, we take away a lot of that time and resource of having to do the research, of potentially applying for insurance and then being either rated or declined and not back, and then starting the process again. They did discuss a little bit about the advised versus non advised and the hybrid options as well. So advised means you are have somebody like myself who will say, right, these are your circumstances. I am telling you that you need without being that blunt, obviously, but I'm saying that the insurances that you need are x, y, z, and the best ones for you are over here with this insurer. Now non advised is where somebody goes to somebody, and obviously they're not non advised. So they will say to somebody, these are my circumstances. I want this insurance. And a non advised salesperson will say, okay, I can get that for you with this insurer. So they can find it and they can source the insurances, but they just won't give advice as to whether or not that's the right insurance for that person. And then you have hybrid options where people maybe go down a non advised route, and then actually it does become quite complex. So they are moved to an advised or possibly what's known as sign posted to an advised firm.

 

Kathryn Knowles  17:19

The FCA did recognize, obviously protection insurances, obviously life insurance does play quite a vital role in inheritance and tax planning. There's obviously the complexity of the trust, the potential for lasting powers of attorneys, for wills. And you know that they have recognized, and they do specifically say that is very, very complex part of providing advice to consumers, which, again, was really lovely to read, because Protection Insurance has been given often a bit of like being put in the back burner. It's a bit like I always say. It's a bit like, seen as the annoying little sister of the insurance industry. And I can say that because I am the annoying little sister in my family. And it's always been pensions and mortgages, in a sense, and they're the ones that get all from training, from regulatory, from governing body kind of view, they tend to get more attention and pure protection, which, you know, is that is the way that it is. So it was just nice that the FCA have said, you know, this is, this isn't just something that's easy and should just be seen as quite simple to do. This is a very, very complex thing, and ultimately, as well, with the FCA, one of the key things is consumer duty, making sure that we are doing everything as right and as humanly possible for clients. And you know that certainly means when it comes to inheritance tax, inheritance planning, tax planning, things like that, it shouldn't be particularly easy. It should absolutely look easy for the consumer, but from an advisor point of view, it should be tricky, because that is what we're here for, to go around all of those complexities that that person and their families are facing.

 

Now, on page 10, there was a very, very interesting table, and it's kind of goes back to what I was saying before about the income protection and how amazing advisors have done to get, like, a quarter of all policies written in 2023 and there was a couple here that, again, stood out for me. And I was thinking, I'm going to make a little bit of a suggestion here as to why this is I mean, one thing that really surprised me is that with whole of life, it's going to be whole of life, it'll be whole of life and IP I'm gonna be talking about again. So apologies, there are the other ones in there as well. But whole of life, 39% in 2023 was arranged on an advised basis, and 61% on non advised. Now I found that quite surprising. Now it might just be that most of those are a bit of like funeral benefit. People are going for quite small summer shorts, and they've just decided to, you know, do this instead of a funeral plan, or instead of an over 50s cover, which, you know, for some people, that might absolutely be sufficient for the needs. My key concern there is that people are potentially trying to set things like this up as as potentially sorting out their own. A perspective of what potential inheritance tax their families may face. So, you know, it is what it is. But you know, I do think that that's I would have felt more comfortable if the majority of whole of life was advised versus going down a non advised route. And that is to say, when we're talking on the non advised side of things, I'm not saying specifically, non advised sales people. I'm just that's just saying that people have gone non advised. So that could be them just going direct as well. So that's not a comment on my non advised colleagues, our peers. That is just the case of, right? That's, that's, that's a very complex area, and things can go very, very wrong, especially with the trusts, incredibly wrong with the trusts, and make the inheritance tax even worse. So, yeah, I feel like that should be something that's maybe looked at a little bit more. We then have the income protection side of things.

 

And what I absolutely love about this is that 97% of income protection was advised, and three was non advised. And the reason that that could be so high is because there are some income protection providers who only work with brokers. They don't do direct to consumers. So you know that will obviously contribute to it. But my Inkling is, is that the reason that it's 97% is because, without speaking to advisors, I don't think people are necessarily really going for income protection that much themselves, and that also kind of fits in with the life and kick stats. So for life and critical illness, cover 82% was advised, versus 18% non advised. And the only thing I can say is just from my experience. So you know the amount of people who come to cure, or you know that I know I hear of as well with with other firms, and it's always life insurance. I need life insurance, things like that. And then when you speak to them, they've either never heard of critical answer, income protection, or they just don't think it's right for them. And that might ultimately be the case that they, you know, it's just not affordable to them, or it is just something that they just seriously do not want no matter how much you explain how important it is. So I think those really high percentages there are the fact that it is advisors and intermediaries are playing an incredibly vital role in getting those insurances in place for people. So next thing was all about market participants. So this was really about how, who are the players in this? So we've got stock insurers, we've got mutual insurers.

 

There's a complex table on page 13 that you are welcome to look at. Obviously, it made me go completely cross eyed. It talked about the reinsurers, the networks, intermediaries, lead, generators, consumers, all these different types of things, and how kind of like the communications and the business processes work between them all, but essentially, when you look at things, you have your insurers, the reinsurers sit behind the insurers, and essentially they insure the insurers. You then have the intermediaries who sit between the insurers and consumers. You then have, obviously, you then also have sort of like the platforms that people comparison sites which go between the insurers and the consumers as well. You then potentially have lead generators sat somewhere amongst us, but not in every single aspect of it. I was a little bit confused on the table, because I felt like the table maybe seemed to indicate that, if you it, would go consumer lead generator, then intermediary, which isn't obviously always the case, but it does depend upon how they are classifying those lead generators. Or maybe I just got a bit confused. You never know. It did talk about the need and obviously the position of specialist insurers as well. So your really high risk policies, your niche markets, your bespoke policies that are built for people, depending upon what is really when it comes down to it, they're they're much higher area risk of making a claim to the insurer.

 

It did talk a little bit about the role of underwriting, about the mortality and morbidity risks and how that is coordinated by insurers and reinsurers. And on table 14, Table five, I said this the last time I recorded this as well. It isn't it's page 14, and the table that's on there, and they do talk about the annual premiums that are coming in per product. So it was saying that life insurance non related to mortgages, so that's done differently. So life insurance that's not related to any kind of mortgage is in the grand scheme of things, because I say that there are ways that it can be, but possibly wouldn't show in that data. But just forgive me while I go off on a side tangent in my brain. But basically, life insurance that they're not classing as related to a mortgage brings in about 318 million pounds of premiums within the UK, when it is mortgage related, that's 188 million premiums. And the income protection is 102 million premiums that are being brought in in that kind of annual time period. Lots and lots of other things in terms of how the reinsurance. And insurers work, which is quite interesting. It's said in a quite nice, simplistic way. If you do want to read into that, I know a little bit more. But again, going back to nice pat on the back for the intermediaries, it said that in terms of individual business, new individual and protection policies in the UK for 2023 88% was arranged by intermediaries, which is just fantastic, like we say, we are playing a crucial role and and it was nice to for the FCA to recognize that and to include that statistic.

 

And they do talk about, again, the roles of principals, so and principal network firms, ARS, appointed representatives directly authorized member firms, directly authorized independent firms, sorry, professional services firms, which be more like people who offer like compliance, support, training, things like that. And there was a few other things. It talks about the role of like comparison platforms and portals, potential underwriting and streamlining the processes. But now I was really, again, happy to see this, that it does talk about the straight through underwriting. Obviously it can reduce costs, which is potentially desirable to certain levels, but it did talk about the fact that, you know, it has that there is that concern it has been voiced to them, and it's really good to see that they have noted it is that it obviously it can weak competition and competition because, you know, there are, if all insurance firms sign up to the same kind of underwriting application, it does reduce the ability to compete and for them to maybe have some specific niche risk areas that they're prepared to do

 

Kathryn Knowles  26:43

more with than other other firms, but it also means that vulnerable clients as well can't particularly use them. So if you've got straight through application software, which can work fantastically for a lot of people, there are certain times, though, where it won't. So if it is, you know a site where you can put in application details, it's going to give you all the details from loads of insurers at the end of one, go, brilliant. But it's if someone has had cancer, if someone has had a heart attack, and if someone has had a stroke, anything where you know that they are going to ensure is probably going to want to see a report from the GP, then those sites aren't going to work well for that person. It did discuss as well, very much the need for lead generation, where that takes place, how it's done, but the fact that it must be ethical and comply with data legislation. There has been some, quite, quite a lot of concerns, and have been some people working fantastically in this space. I have done some podcasts on it before as well, if you want to go back and listen to any of the episodes and just about how there have been some people who haven't been working exactly as you would want them to be working. And unfortunately, it has led to some really bad consumer outcomes. And also unfortunately, it has led to some firms having some very, very sad circumstances where maybe they have been drawn in by somebody who appeared to be a legitimate business partner, and then, unfortunately, that's not the case, and it has, at times, forced firms to close, which is incredibly sad, because you've then got firms who were doing a really, really good job, who just so happened to then have a very, very unfortunate set of circumstances presented to them.

 

We then have as well that they talk a little bit about that post sale engagement, and I think that'll be a really key factor as well, going forward with the FCA is sort of what happens in that servicing phase. How do we ensure that these policies remain relevant and useful for the people, especially as circumstances change with life events? And it does say, obviously, in terms of support, that usually on an advice service, you would tend to have more servicing support than a non advised. That's not always the case, but that is what is indicated in the report. I'm not going to go through too much more, don't worry and but just highlighting some more bits so market practices and it was talking about, you know, the fact that usually protection insurance is based upon age, smoker, status, health, the risk profile. It's usually paid for monthly, and that the reinsurers are there to help the insurance, because they've got reinsurance have incredible amounts of data, decades of data that you know, they can say, right? If somebody is this age and they've had this condition, and this has happened, then actually they're, on average, they are likely to live for the next, however, many years. And it's ridiculous the amount of data they have, but incredibly powerful and knowledgeable, and they use that to help insurers to inform what's known as their risk appetite.

 

So each insurer will have a. Different risk appetite as to what they are prepared to to accept, and it changes as well. And they will tailor that based upon market trends, different parts of the business and things like that. And they might be able to with some insurers if they have other areas that they work in, in the in the finance space, it might be that they can potentially have a little bit more risk appetite, because they have that ability to cope with any kind of unexpected, you know, if there's some huge influx of claims and things like that. And so it's really interesting. They have spoken about the FCA, about the role of re broking, about how, and obviously this comes down to the surfacing how this can be potentially beneficial to the client. So you know, you've done a policy for them for a mortgage that's 200,000 but their new mortgage is 400,000 well, we might replace the policy with the new one, or do top up cover, but obviously it does present risk to the clients if you do replace a policy from an advisor point of view, I've spoken about this many, many times, just do as much as you can to highlight all the advantages and disadvantages. You do need to have to be aware of that. And also, you know that there is that thing of sort of looking when people are re broken. Is this to do with commission? So you know commission is going to be being looked at as well. It talks about indemnity, non indemnity, hybrid level commissions, renewal commissions, how commission sacrifice works, the fact that, you know, there was potential claw backs for two to four years and and I have to say, obviously, the FCA is looking at this book, you know, obviously for other firms as well.

 

The insurers look at it as well. If you suddenly, if you are a firm who's re broken and you're doing it for the commission side of things specifically, then you know, insurers are watching, well, hang on a minute this this firm seems to suddenly be canceling policies every two to four years. This is matching up with when our commission stops or when the claw back period has ended. And you know, it can put you in very bad books with the insurers. So it is just really important not to do that, and naturally as well, that's just not always going to be the best route for the client. There is absolutely times when you will look at options for clients, and it just happens to coincide with that commission time period, and you need to do better options, fair enough. It's just if you are doing it, obviously consistently. And that is something that the FCA, as say, is going to be looking at. They are looking at how Commission works as a whole. And what we would say is that, I know that there was a discussion about this many years ago about, do they still have commissions like obviously, they they took everything like that away from the pension space. You know, that would they do it in the protection space as well, and at the time previously, it was, you know, obviously debated. And one of the key elements with this is, is that if you, if you take away commission, then obviously you move every to a fee base. And unfortunately, that would put a huge part of society in a detrimental position. And you know, we have millions of people in the UK who have health conditions, many, many millions. And you know, if it was a fee based approach, you know, it would, it would be impossible to sort of ask a lot of people in that situation to pay a fee to be able to get the insurance, because quite a few of them are already experiencing situations where their incoming is inherently lower due to their health. And so it was seen at the time when it was reviewed before the commission would stay within the protection insurance space. I am hopeful, obviously, that, in a sense, that that will remain the case, because, you know, as I say, if not, it will significantly reduce the amount of people who have access to insurance, which is by the very nature would go against the FCA drive to, obviously, make sure that there is fair access to insurance. And obviously that level of consumer duty that we're all trying to achieve.

 

They are planning as well on looking at the only one I didn't mention at this point was loaded premiums. So they are planning on reviewing that area as well. They do talk a bit about the regulations and market developments. So the main ones are obviously the bottom consumer duty. There is something called prod four as well, and there is an ongoing consultation that is being done by the Law Commission into the legislation that is currently governing neutral insurers and friendly societies and HM Treasury have authorized that and requested that. So there might be some developments coming out soon in regards to that space, in terms of how the firms are able to operate, but that'll just be very much a watch this space at the moment. And another thing that came down to, as I say, the fact of the competition in the markets. You know, in the last few years, in terms of individual protection, we have lost Canada life, Aegon, AIG and HSBC from the Protect. Space. So we are getting fewer and fewer competitors, which does mean, especially for potentially higher what's known as high risk clients, or more vulnerable clients. It is potentially really narrowing their ability to get insurance, which, which is a real shame. So the next steps from the FCA, they're wanting to ensure that competition is effective. They're doing some surveys, and they're just analyzing all of that.

 

At the moment, they do want to investigate that protection gap for vulnerable customers. You know, it is a really, really key area. I've obviously spoken with many charities, been involved in quite a lot of industry groups, and there is a huge call out, obviously, for support in this area. And just trying to make things as simple and straightforward for people as possible as I'm sure any advisor knows, things like GP reports are never the easiest things to get. So I think that there is going to be a look at everything and all of those processes. It does say specifically as well, though, that distributors are not the key focus, that intermediary firms aren't necessarily exactly where the FCA has their focus. At this moment, they are primarily looking at insurers and consumers, but obviously, like intermediary influence on things like the portals, lead generators are going to be considered and reinsurer influence is going to be considered, too. And they have finished off by saying, you know, that they are definitely going to be looking at structures of commercial commission, arrangements, how panels work. So obviously, I didn't mention this before, but they talked about single, tied, multi tide or Hall of market options,

 

Kathryn Knowles  36:38

and if, whether or not sort of like that re broken thing is being influenced by commissions as well, and if that's ending up to client detriment. And then lastly, that market entry and innovation in the UK, we are losing insurers and just trying to make sure that everything remains as competitive and as relevant for today's society as well making sure those products are still exactly where we need them to be. There are certainly areas of products that could definitely do with a revamp to make sure that they are relevant to modern society, in terms of medicine and in terms of consumer needs. And hopefully, fingers crossed, we'll see all that, and this will be a really good first step. I really like this paper. I thought it was a very good, accurate representation of the things that they, FCA, are going to be looking at, and hopefully we'll see some positive outcomes and suggestions going forward. Thank you for listening everybody. I hope that was okay. I always feel a bit strange when I do ones where they've got a bit of data, because I know if it was myself and someone was reading data out to me, I would absolutely switch off. So hopefully you're still with me next time, Alan is going to be back with me and we're going to be chatting about arranging protection insurance for people with neurofibromatosis. As always, please do feel free to get your web your CPD certificate from our website, practical protection.co.uk. And that is thanks to our sponsors, and I'm going to make sure I say the updated version now. So our sponsors planner X, they used to be next gen planners. They have updated to planner X, and I will see you all hopefully very, very soon. Bye, everybody. You you.

Transcript Disclaimer:

Episodes of the Practical Protection Podcast include a transcript of the episode's audio. The text is the output of AI based transcribing from an audio recording. Although the transcription is largely accurate, in some cases it is incomplete or inaccurate due to inaudible passages or transcription errors and should not be treated as an authoritative record.

We often discuss health and medical conditions in relation to protection insurance and underwriting, always consult with a healthcare professional if you are concerned about any medical conditions and symptoms we have covered in any episode.

Episodes

Kathryn Knowles discussing Cystic Fibrosis
Episode 4 – Cystic Fibrosis

November 13, 2025

Kathryn Knowles discussing Critical Illness Cover in Trust
Episode 3 – Critical Illness Cover in Trust

October 23, 2025

Coeliac disease life insurance, critical illness cover and income protection
Episode 2 – Coeliac Disease

October 9, 2025

Kathryn Knowles discussing joint life second death vs single life insurance
Episode 1 – Joint Life Second Death vs Single Life Cover

September 18, 2025

Bowel Cancer and Me - Phil Jeynes
Episode 13 – Bowel Cancer and Me

July 10, 2025

Early Onset Colo Rectal Cancer with Kate Baldry, Hannover Re
Episode 12 – Early Onset Colo-Rectal-Cancer

July 5, 2025

Kathryn Knowles and Lisa Balboa from Hannover Re, discuss AI and insurance
Episode 11 – AI and Insurance

June 12, 2025

IHT Case Studies with Kathryn Knowles
Episode 10 – IHT Case Studies

May 29, 2025

Chronic Fatigue Syndrome with Kathryn Knowles and Alan Knowles
Episode 9 – Chronic Fatigue Syndrome

May 15, 2025

Cigarettes and alcohol with Kathryn Knowles and Alan Knowles
Episode 8 – Cigarettes & Alcohol

May 1, 2025