Protection is meant to be financial planning. It’s literally the part that stops your plan exploding when life happens.
Yet the minute you walk into the protection market, it’s like you’ve wandered into a bazaar: loud, shiny, “special deal for you today,” and somehow everyone’s strangely excited about your monthly budget.
That’s not an accident. It’s the business model.
In the FCA’s pure protection market study, stakeholders told the regulator that indemnity commission is typically a multiple of the annual premium (around 200%) and it’s paid on sale. Translation: two years of your premiums’ worth of commission can land with the seller upfront, the moment you sign.
So yes, there’s “advice”… but there’s also a very obvious incentive to get you over the line quickly, keep you paying for long enough, and (this is the spicy bit) occasionally “review” you into a fresh policy so the commission machine gets fed again. The FCA explicitly flags that commission can drive unnecessary re-broking (switching you when it isn’t needed), even into a worse-fitting policy.
Front-loaded commission doesn’t come from magic money. It comes from your premium.
Here’s where people get stitched up without anyone technically lying.
When commission is front-loaded, the insurer is paying the intermediary upfront on the assumption you’ll keep paying premiums for a period, “initial commission” assumed over two to four years, with repayment if the policy lapses).
That setup changes the whole vibe of the sale. Because once commission is paid at the start, the economics push towards:
getting the premium agreed quickly,
keeping you on risk long enough to avoid clawback,
and, in the worst cases, “churn”: selling you a new policy and calling it a review.
But the most important part is this: Front-loaded commission puts pressure on the premium.
The FCA spells out one of the clearest mechanisms: “loaded premiums” (also called enhanced premiums), where an insurer pays a larger commission to a particular intermediary and recovers it from the customer through a higher premium than could be obtained elsewhere.
And in its press release launching the market study, the FCA says it will examine whether premiums are being raised by insurers to pay a higher commission to an intermediary.
So when someone tells you “don’t worry, the advice is free,” what they often mean is: you’re paying for it silently, built into the premium, and sometimes paying more than you needed to because the commission deal is richer.
But commissions got banned… didn’t they?
For investments, yes. For protection, not really.
The FCA’s own consumer guidance states that advisers can’t charge commission (including trail commission) on new investment products bought after 31 December 2012. That’s the RDR world: costs made explicit, fewer hidden inducements.
But the same FCA page is blunt that the commission ban doesn’t apply to protection products like critical illness and income protection.
And that difference matters, because pre-RDR investment commission was exactly the kind of incentive problem regulators wanted to kill. The FCA’s RDR review notes that commissions distorted incentives and that commissions to advisers were banned from December 2012, replaced by adviser charging agreed with clients.
For context, the FCA-commissioned Europe Economics report gives a snapshot of typical pre-RDR commission levels: investment bonds often 5% to 7.5% initial (or 4.5% + 0.5% trail), and unit trusts/ISAs typically 3% initial + 0.5% trail. Trail commission itself is described by the FCA as typically 0.5% per year, often buried inside charges.
So we already ran this movie once. We just… left protection in the sequel.
Unregulated isn’t the right word. Looser is.
Protection is regulated, but the guardrails are not the same shape as investments, and it shows in how it’s sold.
One particularly geeky-but-important nugget from the FCA’s market study pack: the Consumer Duty’s Products and Services and Price and Value outcomes are disapplied for general insurance and protection products (except long-term care), because firms are subject to similar requirements under PROD 4 instead.
That’s not “no rules.” But it helps explain why protection can still feel like a sales arena rather than a planning discipline: commission is permitted, front-loading is normal, and price comparison is messy.
The Wiseones punchline
Protection isn’t meant to be bought like a sofa, tested in a showroom, discounted at the till, delivered with a grin.
It’s meant to be bought like a parachute: based on what it does when things go wrong.
But in a market where commission can be ~200% of annual premium paid upfront, and where the premium itself can be loaded higher to fund that commission, the default experience becomes: lots of selling, lots of bundling, lots of “for just £X more…” and not enough outcome-first planning.
Which is why the smartest move isn’t “get three quotes.”
It’s to walk in knowing what you’re trying to achieve, because the moment you hand over a budget before you’ve defined the outcome, you’re not being advised.
You’re being priced.