The Financial Conduct Authority (FCA) has proposed a series of actions and options it can undertake to help the protection insurance industry close the protection gap.
These include extending its targeted support regime to the pure protection market, encouraging firms to nudge consumers at appropriate points and working with government strategies.
It also noted work supported by Fair4All Finance to explore gaps in income protection (IP) products for groups who may see significant benefit.
In its pure protection market study interim report, the regulator noted that helping consumers navigate their financial lives was a central part of the FCA’s strategy, and it wanted to help the sector close the protection gap.
“Tackling the protection gap is likely to require contributions from a variety of stakeholders,” it said.
“We believe our role should focus on steps that we are uniquely placed to undertake – for example, using our powers, or system wide influence – but not actions that regulated firms could carry out just as effectively if not more so, at their own cost and resource.”
It outlined two major options it could carry out in doing so:
- Improving awareness through increased use of prompts or trigger points,
- Targeted support for pure protection products.
Improving use of trigger points and nudges
The regulator noted that life events, such as buying a house or having a child, were typically triggers for people to consider their protection needs.
It suggested it could encourage use of its innovation sandboxes and open finance work to explore ways to improve digital engagement with people at different trigger points to raise awareness of pure protection products.
“We could further encourage firms to highlight useful metrics, such as claims acceptance rates, acting as a nudge that may change firm and consumer behaviour,” it said.
Expanding targeted support
Firms have told the FCA a targeted support solution could be considered for pure protection products.
In December the regulator published its policy statement and near-final rules for targeted support which would allow firms to provide suggestions designed for groups of consumers with common characteristics to help them make important decisions across their pensions and investments.
“Targeted support could potentially help to close the protection gap for consumers who are not well-served by standard market offerings,” the FCA said.
“This would need to be considered carefully, however, as it would involve widening the current scope of targeted support beyond investments and pensions, and is likely to involve significant regulatory change.”
IP exploration
The FCA also noted that an industry-led exploration of income protection would be conducted to ensure the product was supporting as many different needs as possible and to raise awareness.
It said this was being supported by financial inclusion not-for-profit organisation Fair4All Finance, which is already involved in the government’s Financial Inclusion Strategy.
“Reducing the protection gap would likely require the combined effort of the regulator, industry and potentially the government,” the FCA said.
“We are supportive of the work that is being done under the government’s Financial Inclusion Strategy to improve access to insurance.
“As a part of this strategy a pilot is being led by Fair4All Finance to explore the uptake of home contents insurance among social renters in England, supported by Association of British Insurers (ABI) and FCA, and a Total Signposting initiative led by BIBA [British Insurance Brokers’ Association].
“There will also be industry-led work, supported by Fair4All Finance, to explore gaps in income protection products for groups who may see significant benefit from cover, including the self-employed, with the aim of increasing awareness of income protection, improving overall uptake, and informing future product development.”
The regulator added that through these workstreams it will continue to work with stakeholders to consider if there are any other steps the FCA could or should take to address the protection gap.
