The Financial Conduct Authority’s (FCA) upcoming review of the pure protection market could be “devastating” if it is too overly focused on commissions and fails to learn lessons from the experiences of other countries – particularly Australia.
This is according to Protection Guru founder, Ian McKenna (pictured), in his speech kicking off the company’s awards in London on Friday afternoon.
At the event, McKenna delivered an additional dedication to protection award to longstanding colleague Adams Higgs, who is leaving to join St James’s Place.
And in his opening speech, McKenna maintained that too much of a focus on commissions in the FCA’s review of the pure protection market, which is set for Q1 2025, risks damaging the market.
McKenna’s comments echo similar concerns raised by advisers during Income Protection Action Week, who warned “bad things” could occur if the FCA start playing around with commissions.
On the same day, the regulator said it is not ruling out banning or capping loaded premiums on protection products and admitted it ‘has concerns’ in the protection market.
Separately, McKenna also called on the regulator to use its review to provide explicit guidance requirements for replacement business.
Exercise in commission analysis
“Like so many in this market, I find the review helpful, but I hope it doesn’t end up being an exercise in commission analysis,” McKenna said.
“May I remind the FCA that the UK has the fourth largest life insurance in the market,” he continued.
“It’s a third larger than the French market. It’s nearly double the size of the German market. It is twice the size of the South Korean market and more than twice the size of the Italian market.
“That is something of which we should be proud of as a country.
“But if the FCA gets it wrong, the consequences could be devastating.”
Learning lessons from Australia
According to McKenna, the FCA should seek to learn from other countries.
“Australia recently decimated their market with a 25% drop in both the number of advisers and the number of Australian lives insured,” he added.
“Why? Because they slashed the level of income to advisers and introduced swingeing clawback conditions.
“The FCA must learn from this. It’s crucial.”
Explicit guidance needed
Another area McKenna said he expected to come under scrutiny in the regulator’s review is arbitrage.
“As a direct result of the FCA’s work on Consumer Duty, advisers are increasingly revisiting protection clients because we continue to see improvements in products,” he explained.
“There are frequently situations where new plans are more beneficial to consumers than their existing ones.
“In this situation, if an adviser recommends a replacement policy that recognises that, it is a good consumer outcome.
“It would be helpful if the pure protection review could provide explicit guidance requirements for replacement business in the same way that has been well documented for many years in the wealth market.
“It is inevitable that increasing number of advisers will conduct regular reviews of existing protection contracts.
“That’s what Consumer Duty requires.
“So we are going to see an increase in replacement business arbitrage.”
Answer is in your own hands
Turning to the insurers in the room, McKenna said that the answer for those insurers that object to this increase lies within their own hands.
“When you add to policy benefits for new customers, you can extend the benefits to existing ones,” McKenna said.
“In the meantime, could you please stop criticising advisers for acting in the best interests of their clients – the consumer.
“In my experience in the protection industry, both advisers and insurers are dedicated to achieving good customer outcomes.
“In approaching the pure protection review could the FCA please recognise this.”