The FCA’s Protection Market Study: a positive update for advisers

Date: 4 Feb 2026

Author: Claire Cherrington

The FCA has now published its interim report into the distribution of pure protection products. The report is broadly positive, finding that, for customers who hold protection, the market works well, with high claims acceptance and low complaint levels. The FCA is not proposing significant market‑wide intervention and is not considering banning or capping commission. It will use existing rules first and is consulting on limited next steps through 31 March 2026, with a final report expected in Q3 2026.

For advisers, the focus is on demonstrating suitability, fair value, and proportionate MI on replacements and lapses, and on making point of sale best practice routine to improve claims experience. We’ll keep you updated through consultation and into the final report in Q3. In the meantime, the actions in this note will keep you in a strong position.

The headlines that matter

• The regulator says protection distribution “works well in many respects” for policyholders. Claims acceptance averages 98%, and 515 complaints were upheld by the Ombudsman out of 13.8m policies in force in 2024.
• Around 80% of 2024 sales were via intermediaries, and most sales were advised. The FCA recognises the central role of professional advice in navigating complex products.
• The FCA is not proposing bans or caps on commission because that risks unintended consequences, including worsening the protection gap.
• Three areas to watch: monitoring and reporting of switching, refreshing claims ratio analysis (especially income protection), and making claims experience best practice (trusts, wills, powers of attorney) more widespread.
• A large protection gap remains: 58% of adults hold no pure protection, and 59% of those have never considered their needs. The FCA will work with industry to target awareness and prompts at key life events.

What the report means for you

As directly authorised firms, you hold your own regulatory permissions and are responsible for your advice framework, Consumer Duty outcomes and PROD 4 value assessments. The interim report aligns with how well‑run DA firms already operate: clear suitability, robust documentation on policy replacement, and end‑to‑end focus on client outcomes, including the claims journey. There is no immediate change required to how you sell or are remunerated, but there is clear expectation on evidence, monitoring and proportional MI.

Priorities to demonstrate now:

• Evidence suitability and fair value
  Ensure your advice files capture client objectives, options considered, and why the recommended product and features represent fair value for that client. This is consistent with Consumer Duty and PROD 4 obligations.
• Tighten oversight of policy replacement
  Where you recommend switching, document client‑specific benefit, not just price comparisons. Maintain MI on replacement rates, early lapses and the impact on client outcomes.
• Monitor lapses and switching
  The FCA observes small spikes in lapse rates after clawback periods. Even though overall harm appears limited, firms should be able to identify, monitor and explain replacement activity. Track by adviser and lead source where possible.
• Strengthen the claims experience
  Make it standard to discuss trusts, wills and powers of attorney at point of sale and record client decisions. The FCA highlights these as practical steps that materially improve outcomes at claim.
• Keep an eye on income protection value
  The FCA will refresh its analysis of claims ratios ahead of the final report. Continue to assess value for money, features and suitability, particularly for IP.

Frequently asked questions

• Is the FCA changing how commission works?
  No. The FCA is not proposing commission bans or caps and intends to use existing rules and supervision first.
• Do I need to change how I sell protection now?
  No immediate changes. Keep focusing on advice quality, fair value, clear documentation and post‑sale support.
• Is policy replacement still acceptable?
  Yes, where it clearly benefits the client. The emphasis is on evidenced client need and outcome, and on firms monitoring switching with proportionate MI.
• Are restricted panels or loaded premiums a concern?
  The FCA has reviewed loaded premiums and restricted panels and, at this stage, they are not a concern. However, firms must ensure distribution arrangements do not adversely affect value. Keep your panel governance and conflict management tight.
• What about complaints and claims performance?
  Claims acceptance is high on average and complaints are low relative to the number of policies in force. Continue to make point of sale best practice routine to improve claims experience, including trusts and practical signposting.