such as placing policies in trust, and setting up wills and powers of attorney.
The Regulator has stressed that more widespread such practices become, the better the outcomes for consumers if / when they need to make a claim. FCA want to encourage this as it aligns with expectations under our existing rules and is a clear example of good practice. FCA may look to use existing or new rules and / or guidance to achieve this.
Income protection claims ratios
The FCA noted that‘ income protection’ has a lower claims ratio than other pure protection products( 40 %). Insurers state there are several reasons for this, including that income protection products require a higher margin to protect against fluctuations in payouts. The FCA has observed indicators that claims ratio are improving and intend to keep this under ongoing review.
The Protection Gap
The FCA want to help firms reduce the protection gap, particularly for those that are vulnerable or harder to insure. FCA research suggests that the protection gap exists primarily because consumers aren’ t aware of their needs and aren’ t prompted to consider them.
Some aren’ t able or willing to pay for such products and may have misconceptions about them. There may also be friction in the sales process. For example, both insurers and intermediaries have raised concerns that advisers are not appropriately remunerated for the time, effort and expertise it can take to navigate the complexities that come with finding suitable cover for a customer with pre-existing health conditions, which may discourage them from providing it.
The FCA would like firms to consider improved awareness through use of prompts or trigger points( nudges) where there are important life events. The Regulator has also suggested it may also look at‘ Targeted Support’ for pure protection products. Targeted Support is a concept that has been introduced in the investment and pensions sector allowing larger firms, subject to approval from FCA, to provide suggestions designed for groups of consumers with common characteristics.
According to FCA, a targeted support style intervention could help to close the protection gap for consumers who are not well-served by standard market offerings. Any proposals in this space would require significant regulatory change and close and careful scrutiny to ensure they complement and do not compete with existing intermediary sales processes.
Next steps
The FCA has said it will organise workshops with‘ stakeholders’ in Spring 2026, with no further detail at this stage about how that engagement will take place or who will be invited.
Whilst it is welcome that there are no changes planned which could hinder the intermediary sector, firms must not to view this outcome as a reason to let standards drop. For all broker activities it is important to maintain quality of process.
The FCA intend to publish a final report in Q3 2026, in which they will set out final findings, a summary of feedback received, and any intended next steps. In the meantime, the sector can both breathe a little easier and look forward to reforms designed to provide a healthy and sustainable sector that continues to deliver good outcomes.
March 2026 | 7