FCA Protection Gap Review Nears Final Report as Millions Remain Without Cover

Published: 21 September 2026

The Financial Conduct Authority's review of the UK's protection insurance market is approaching its final-report stage, with the regulator examining why millions of adults remain without life insurance, critical illness cover or income protection despite potentially facing substantial financial shocks.

The FCA's Pure Protection Market Study found that 58% of adults do not hold a pure protection product, while 59% of those without cover have never considered their protection needs.

Its interim findings, published in January, concluded that the market generally works well for consumers who do buy protection. The FCA found a wide range of products, relatively stable costs and high levels of successful claims.

But it also identified a substantial gap between the financial risks households face and the protection they have in place.

The regulator closed its formal feedback period on 31 March 2026 and has been working with insurers, advisers, intermediaries and consumer organisations ahead of a final report expected in the third quarter of 2026.

As of 21 September, the FCA's market-study timetable continues to point to a final report during Q3.

What does the FCA mean by the protection gap?

The protection gap is more complicated than simply counting how many people do not have an insurance policy.

Someone without life insurance may have little need for it if they have no dependants, substantial assets and few financial commitments.

Another household may own a life insurance policy but still have significantly less cover than would be needed to maintain housing costs, childcare and everyday spending after the loss of an income.

The FCA itself has acknowledged that there is no universally accepted way to calculate the protection gap.

Its research estimated that around 72% of identified protection needs were not covered when potential needs for term life insurance, critical illness cover and income protection were compared with policies actually held.

The calculation is necessarily approximate because every household's circumstances, resources and willingness to insure are different.

For consumers, the more useful starting point remains the question explored in our guide to whether you really need life insurance: would somebody else be financially worse off if you died?

Why are people not buying protection?

The FCA's research suggests that the gap cannot be explained by one factor.

Some consumers are simply unaware that they may have a protection need.

Others are not prompted to think about it.

Affordability can be a barrier, while misunderstandings about insurance, uncertainty about products and shortcomings in the sales journey can also prevent people taking action.

That distinction matters.

A household may recognise that losing an income would create serious financial difficulty but still be unsure whether it needs life insurance, critical illness cover, income protection or some combination of the three.

Those products solve different problems.

Life insurance generally protects the people left behind following death.

Critical illness insurance can provide a lump sum following a diagnosis that meets the policy definition.

Income protection is designed to replace part of someone's earnings when illness or injury prevents them working, subject to the policy terms.

Our guide to life insurance versus critical illness cover explains why different forms of protection should not be treated as interchangeable.

The FCA is also examining how protection is sold

Closing the protection gap is only one part of the regulator's work.

The FCA's market study has also examined the way protection insurance is distributed, particularly through advisers and intermediaries.

Protection products are frequently sold through mortgage brokers and specialist protection advisers.

The FCA has been considering whether commission structures and other incentives could sometimes affect the advice or outcomes consumers receive.

One area of particular concern is unnecessary switching.

Replacing a life insurance policy can sometimes be appropriate if someone's needs have changed or a new plan offers genuinely better protection.

But replacing cover simply to generate new commission can harm consumers.

An older policy may have been arranged when the customer was younger or healthier. A new application can involve fresh underwriting, potentially resulting in a higher premium or different terms.

The FCA says intermediaries should ensure that a switch provides a clear benefit to the consumer and continues to meet their needs.

Workplace cover can hide a protection gap

Employer benefits add another complication.

Someone may have death-in-service cover worth several times their salary and therefore feel well protected.

That benefit can be valuable.

But it is normally linked to the job.

Changing employer, being made redundant, taking a career break or moving into self-employment can therefore remove part of the household safety net.

Our guide to what happens to your life insurance when you change jobs explains why personal life insurance and workplace death-in-service cover need to be considered separately.

The FCA's protection-gap work therefore has to account for more than policies bought directly by consumers.

Savings, employer benefits and informal family support can all influence how exposed a household really is.

Affordability remains a difficult part of the debate

A protection policy can only provide useful long-term cover if the premium remains affordable.

For households facing pressure from mortgages, rent, food, energy and childcare, insurance may be one of the expenses they feel able to postpone.

That creates a difficult trade-off.

The households most vulnerable to losing an income can also be those least able to add another monthly commitment.

The answer is not necessarily to buy the largest policy available.

A more realistic approach is to identify the most serious financial commitments first.

That could mean considering:

  • Mortgage or rent
  • Children and dependants
  • Essential household expenditure
  • Existing debts
  • Savings
  • Partner income
  • Pension benefits
  • Workplace death-in-service cover
  • Existing insurance

Our guide to how much life insurance you may need looks at those resources and commitments together rather than starting with an arbitrary cover figure.

Trust in claims remains important

The FCA has also identified consumer understanding and confidence as part of the protection-gap problem.

Some people worry that insurers will find a reason not to pay when a claim is made.

Industry claims data generally shows that most individual protection claims are accepted, but the FCA is continuing to examine claims ratios and the overall claims experience as part of its study.

A high industry-wide claims acceptance rate does not mean every claim will succeed.

Applications need to be completed accurately, premiums need to remain paid and claims must satisfy the conditions contained in the policy.

Critical illness insurance provides a particularly clear example.

Someone can have a genuine serious illness but still fail to meet the specific definition required for a particular critical illness payment.

Life insurance claims can involve different issues, including whether the policy remained in force and whether relevant information was provided accurately during the application.

Our guide to what life insurance actually pays out for explains some of the circumstances that can affect whether a claim is payable.

Faster sales are not necessarily better sales

Technology could play an important role in reducing the protection gap.

Simpler online applications, better use of data and clearer underwriting journeys can make protection easier to access.

But speed alone does not guarantee a good consumer outcome.

Someone who buys a policy quickly without understanding:

  • How long it lasts
  • How much it pays
  • What event triggers the benefit
  • What exclusions apply
  • Whether the amount is sufficient
  • Whether workplace benefits already provide similar protection

may still be poorly protected.

The FCA's challenge is therefore to encourage access without sacrificing the quality of the decision.

That is particularly important with income protection and critical illness cover, where definitions, waiting periods and benefit structures can vary significantly.

Our guide to critical illness cover, employer sick pay and income protection explains why existing workplace support needs to be understood before additional protection is considered.

What happens next?

The FCA said in January that it intended to publish its final Pure Protection Market Study report in Q3 2026.

The final report is expected to set out the regulator's conclusions, summarise feedback received from the industry and consumer groups and explain what further work it intends to pursue.

The FCA has already identified several areas of interest:

  • Reducing the protection gap
  • Improving consumer awareness
  • Examining claims ratios
  • Improving the claims experience
  • Addressing incentives for unnecessary policy switching
  • Supporting better consumer outcomes when protection is sold

The regulator's conclusions could influence future rules, supervision or expectations across insurers, brokers and other protection intermediaries.

But households do not need to wait for regulatory changes to understand their own position.

The protection gap starts with a household calculation

The FCA's work is ultimately about a national problem, but protection needs are individual.

A household can start with three simple questions:

What would happen financially if someone died?

What would happen if someone suffered a serious illness but survived?

What would happen if illness or injury stopped someone earning?

The answers may reveal strong existing protection through insurance, savings and employer benefits.

They may reveal a gap.

Or they may show that one particular risk matters much more than the others.

That is why the FCA's protection-gap review should not be interpreted as an argument that every adult needs every protection product.

The more useful objective is ensuring consumers understand the risks they face, the resources they already have and what any policy they buy is actually designed to do.

As the regulator prepares its final findings, that distinction will remain central to the debate over how the UK closes its protection gap without encouraging unnecessary or unsuitable cover.

Sources

Important information

This article is for general information only and does not constitute financial or insurance advice. Life insurance, critical illness cover and income protection vary in their terms, exclusions, underwriting and claims requirements. The appropriate level and type of protection depend on individual circumstances.