FCA says protection insurance pays out well but most UK adults still lack cover

The Financial Conduct Authority’s interim market study finds a 98 per cent claims acceptance rate for existing policyholders, yet around 58 per cent of UK adults hold no pure protection policy at all.

Just 16.2 million people — 30 per cent of the UK adult population — held a pure protection policy in May 2024, according to the Financial Conduct Authority’s interim findings from its pure protection market study. For those who do hold cover, the figures show the market performs strongly: claims acceptance rates average 98 per cent across pure protection products, which is high compared with other insurance markets.

The FCA posted its headline finding on social media this week, framing the challenge directly.

Pure protection covers term life insurance, critical illness cover, income protection and some whole of life policies. In 2022, around 2.5 million new individual policies were sold, generating roughly £928 million in new premiums, and around £4.2 billion was paid out in claims that year.

But the regulator’s position is split. While existing customers appear to get good outcomes, the FCA is concerned that far too many people who could benefit from cover simply don’t have it.

To address that, the FCA said it is partnering with the Money and Pensions Service, the Digital Property Market Steering Group, the Protection Distributors’ Group and the Association of Mortgage Intermediaries. The approach includes prompting consumers at major life events — becoming a parent, buying a home, or starting to rent — when protection discussions are likely to be most relevant. Distributors and mortgage intermediaries are being asked to improve how they raise awareness of protection options with customers.

The FCA’s full market study findings are expected to follow the interim report, which concluded that distribution of pure protection products works well in many respects for those who already buy it. Whether the regulator’s partnership approach moves the dial on the around 58 per cent who currently hold nothing is unclear.