The UK financial regulator wants to investigate whether insurance companies are exploiting “vulnerable” customers who take out policies designed to provide financial security for them and their families in the event of serious illness or death.

The UK’s Financial Conduct Authority (FCA) plans to launch a market study into pure insurance products. These products are intended to provide financial assistance to individuals and their families in the event of the death of a policyholder or the insolvency of their policyholder. It had previously expressed concerns about the way in which such policies are sold.

According to the FCA, around £4 billion in compensation payments were made in 2022.

The regulator said commission arrangements for the sale of some products sold primarily through intermediaries such as mortgage brokers or independent financial advisers may not be fairly structured.

The FCA also raised concerns about the “poor value for money” for consumers, with the total amount of premiums paid over the life of a policy “far exceeding” the maximum conceivable payout.

“Pure hedging can provide peace of mind and financial security, often when people are at their most vulnerable,” said Sheldon Mills, the FCA’s executive director of consumers and competition. “We have seen signs that this may not be the case across the pure hedging market and we will act if we see the market is not working well.”

According to the FCA, the first step in assessing the state of competitive practices in the pure protection sector is to conduct a market study to examine consumers’ experiences and understanding of the products they purchase.

The regulator will also look into “restrictions on competition” for insurers and intermediaries with “potential conflicts of interest in the commission structure”.

The financial regulator will focus primarily on the sale of four types of pure protection products: term life insurance, critical illness insurance, income protection insurance and life insurance, including policies for over-50s with guaranteed acceptance.

“Consumers should be able to buy products that meet their needs and offer fair value,” Mills said.