Restricted insurer panels can be used as an intermediary strategy to negotiate higher commission rates, according to the Financial Conduct Authority’s (FCA) in its pure protection market study interim report.
FCA data showed commission rates were, on average, higher for policies sold through restricted panel arrangements than for those sold through whole of market panel arrangements.
However, premium values were largely unchanged between the two methods. This suggested insurer margins were being squeezed on restricted panels.
The regulator noted that while restricted panels are the most common arrangement for the distribution of protection products, they can be used to create competition for a place on the panel.
It also warned this could led to limiting the compeition and making market entry harder for newcomers.
The FCA said an intermediary’s panel access criteria may make it harder for smaller or newer insurers, who may be less able to offer enhanced commercial terms, to gain access to distribution.
It noted that for most pure protection products, intermediaries generally used several insurers – either through whole of market panels which aim to provide comprehensive coverage of a wide variety of insurers in the market, or restricted panels which have a smaller number of insurers and products.
The report revealed restricted panels were the most common distribution arrangement type in 2024 with approximately 63% of intermediated policies sold through these arrangements.
Creating competition
The regulator pointed out that restricted panels may allow intermediaries to increase specialisation and become more familiar with product characteristics and therefore better able to advise consumers.
However it said using a restricted panel can also be an intermediary strategy to create competition for a place on the panel to negotiate higher commission rates.
Highlighting new sales data provided by insurers for 2024, the regulator said commission rates were, on average, higher for policies sold through restricted panel arrangements than for those sold through whole of market panel arrangements.
It added: “We would be concerned if these higher commission rates resulted in increased distribution costs being passed on to consumers through higher premiums, without corresponding improvements in product features or the quality of intermediary advice and service.
“There’s a risk that an intermediary’s panel access criteria may make it harder for smaller or newer insurers, who may be less able to offer enhanced commercial terms, to gain access to distribution.
“Over time, especially if the panel criteria is tightened, it could reinforce the larger incumbent insurers’ position and limit the scope for entry, expansion, or innovation, even where excluded insurers may offer competitive products or pricing.”
Reminder of existing powers
Consequently, the regulator reminded intermediaries and insurers of their duties under existing legislation.
“We remind manufacturers and distributors of non-investment insurance products of their obligations under Prod 4 to ensure distribution arrangements, including commission, don’t adversely affect the overall value of the products for the customer,” the regulator said.
It continued: “We also remind firms of their obligations under the Consumer Duty and UK competition law.
“Intermediaries and insurers must continue to be conscious of the impact that distribution arrangements may have on consumer outcomes and on competition, particularly where such arrangements could result in higher prices or less choice.”
