Narrowing the ‘protection gap’ could help cushion families from financial shocks

The City regulator is exploring how to put financial protection more firmly on people’s agendas at times in their lives when it matters most.

The Financial Conduct Authority (FCA) has set out work to help narrow a “protection gap”, as research indicates the majority (58%) of adults have no life insurance, critical illness cover or income protection.

Among this group, 59% have never considered their protection needs, the FCA said.

Pure protection products such as life insurance, critical illness cover and income protection, can help households to be financially resilient if their circumstances unexpectedly change.

They help people and their families to manage financial commitments or adapt their lifestyles if the policyholder dies or becomes incapacitated, injured or infirm.

The FCA’s consumer research into pure protection products was carried out in September and October 2025 among more than 14,300 people across the UK.

The FCA said it was concerned that the protection gap can leave people and their families financially vulnerable when unexpected life events happen, increasing their risk of financial hardship and making them less resilient to income shocks, illness or bereavement.

Tackling the protection gap supports wider efforts to improve financial inclusion.

The regulator’s work follows the FCA’s Pure Protection Market Study and will focus on disproportionately unprotected groups of people, such as renters, the self-employed and gig economy workers, those on lower incomes and people with pre-existing medical conditions.

To help more people consider whether protection insurance is right for them, the FCA is partnering with industry, government and consumer groups.

It said the Money and Pensions Service and the Digital Property Market Steering Group will help prompt people to consider protection at key stages, such as when they become a parent or buy or rent a home.

The FCA said it was also exploring how other partners can help put protection on people’s radar when it matters most.

The Protection Distributors’ Group will lead a consumer awareness campaign, targeted at groups who are less likely to take out protection products.

The Association of Mortgage Intermediaries will also lead work to help advisers improve how they discuss protection with their customers.

Graeme Reynolds, director of competition at the FCA, said: “Competition in protection insurance works well for existing customers.

“But we’re working with partners to increase coverage so that more people are protected when they or their families need it most.”

The FCA also said it wanted to see greater innovation in the market and would work to address any misunderstandings about its rules and expectations that may be seen as barriers.

The FCA said its work and industry‑led actions will start by the end of 2026, and it expects meaningful progress over the next 12 to 18 months.

The regulator will monitor implementation closely and regularly review progress, including publishing a short update on delivery and progress by the end of 2027.

Ewen Tweedie, actuarial director at financial services consultancy Broadstone, said: “This presents an opportunity for insurers to consider how they are not just taking their products to market, but how they are promoting the importance of protection for all.”

Dr Yvonne Braun, director of policy, health and protection and long-term savings at the Association of British Insurers (ABI), said: “We’re pleased to see the FCA recognise that the pure protection market works well for customers.

“High claims acceptance rates, stable premiums and a diverse range of products are helping to drive healthy competition and ensure consumers can access protection that meets their needs.

“We’re also pleased that the FCA has reinforced the importance of addressing the protection gap.

“Too many people remain without the financial protection they need, often because they have never considered how these products could support them and their families.

“We strongly support the package of measures set out in the report and look forward to continuing to work with our members, the FCA and wider stakeholders to improve awareness and widen access to protection products.

“Alongside this, we’ll continue our work to streamline access to medical records and help deliver a smoother, more efficient claims experience.”