The Financial Conduct Authority’s (FCA) work to improve consumer understanding of insurance is to be welcomed, but there are no quick fixes to the problem.
This is according to advisers Health & Protection spoke to following FCA director of insurance Chris Knight’s appearance in Parliament last week where he was providing evidence to the Financial Services Regulation Committee at the House of Lords as part of its Consumer Market Inquiry.
One of the key issues Knight (pictured) addressed was the regulator’s work to improve consumer understanding of insurance.
In particular, Knight pointed to the FCA’s work with around a dozen companies to understand what they do in this area in terms of how they act to improve understanding.
He also cited the regulator’s work with consumer groups and the Association of British Insurers (ABI) on how understanding can be improved across the board.
Pretty good job
Protection Distributors Group (PDG) chairwoman Emma Thomson maintained the regulator is doing a “pretty good” job in liaising with lots of different groups across the market including the PDG.
“Obviously we have to wait until their report comes out at the end of this month to find out their next recommendations or summary is going to be of the market, but I do think that they have been working really hard at engaging with lots of different groups across the market to understand how we can tackle this problem,” Thomson told Health & Protection.
“I think it’s not a problem that has any quick fix, so there isn’t one thing that the FCA can do to say, right as of Monday it’s all going to change and this is how we are going to engage more consumers.
“I think at the moment they’re taking measured steps to understand the scale of the problem and what different organisation’s view is of this issue and how we can engage more consumers.”
Poor consumer understanding
Alan Lakey, director of CIExpert and Highclere Financial Services, pointed to CIExpert’s Critical Thinking reports of 2024 and this year which indicate the scale of the problem the sector faces.
“Consumer understanding is poor and whilst it needs improving there are a number of constraints, the prime one being apathy,” Lakey continued.
“Overcoming apathy is a big hurdle because most consumers find insurance boring and complex and to understand the details of a 40 page brochure is usually a step too far.
“As always, education is the key although, in my experience, consumers tend to only become interested when a claim occurs.”
Speak to consumers like they’re consumers
Looking ahead, Kristian Breeze, director of healthcare at Ascend Broking Group, said he feels that consumer understanding will only improve when the industry is prepared to speak like consumers rather than insurance professionals.
“We’ve become very good at explaining products, but not always good enough at explaining why they matter,” Breeze said.
“The FCA’s work is a positive step, but meaningful change will come from clearer communication, better financial education and making protection a mainstream conversation rather than something people only consider after a health scare, bereavement or financial shock. The protection gap isn’t an awareness problem alone, it’s an engagement problem.
“The biggest challenge in protection isn’t product availability, it’s helping people understand why the cover matters before they need it. That’s where advisers continue to play a vital role.”
