Healthcare protection policies can be too complicated and lead to unintended, negative consumer outcomes, the Financial Conduct Authority has warned.
In the 86-page Sector View 2020 paper, published last week, the City Watchdog suggested advisers and providers needed to do more to protect their clients against rising premiums and inadequate protection policies.
While admitting that it has no lien over protection, the FCA stated: “Increasing numbers of people are living with long-term illness. More than 15m people have a long-term condition, and this is projected to increase in the next 10 years.
“The industry will need to ensure these individuals understand the importance of protection products, such as income protection, and to ensure that products are accessible and fairly priced.”
It also commented on the low take-up of income protection products: “The reasons for lower take-up of protection products vary. They include consumers consciously choosing not to buy these products because of cost, behavioural biases including consumers underestimating the likelihood of having to claim and over-optimism about their financial resilience.”
It cited an earlier report commissioned by the Financial Services Consumer Panel, which found the complexity of products made people less likely to buy income protection than critical illness cover, for example.
This comes as the regulator said the withdrawal of the UK from the European Union posed a risk for insurance in the form of contract continuity.
It commented: "Firms are restructuring operations to reduce disruption to their customers, including setting up new European entities to exclusively service their EU businesses. They also need to ensure these contracts remain valid at the end of the transition period and so may need to amend them (‘repapering’)."
For brokers and advisers operating in insurance, this means ensuring registration is valid in the relevant jurisdictions and ‘repapering’ the terms of engagement where necessary, which will also need to take into account general data protection regulations during this process.
According to the FCA: "These changes could increase industry costs, which are typically passed onto consumers. While the increase would theoretically be a one-off, the ongoing uncertainty around EU withdrawal could increase these costs further.
"Insurance firms have highlighted there is little consistency in regulatory regimes across the EU, which also drives up costs. This underlines the need for continued international co-operation between regulators."
Uncertainty over cross-jurisdictional travel for work or pleasure has also led some industry commentators to consider the possibility that healthcare protection products may become more popular post-December 31, when the transitional withdrawal period is over.
simoney.kyriakou@ft.com
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