Mind the gap: why the FCA’s protection push matters, and what it will take to work

Synopsis

The FCA has launched a cross-industry push to close the UK’s protection gap. Nearly six in ten adults have no life insurance, critical illness cover or income protection, and most of them have never even thought about it. This is not a new problem. Regulators, consumer bodies and the industry have debated it for years with little to show for it. But the case for action is stronger than ever. The gap has widened significantly over the past decade, and rising living costs, growing debt stress and a cooling jobs market mean millions of households with little savings and no cover are one shock away from hardship.

The FCA’s call to action is welcome, and its recommendations are sensible as far as they go. There is no silver bullet. Real progress will need a package of measures built on three things: innovation in products, innovation in distribution, and a regulator willing to let firms take measured risks. None of that will work without trust. The FCA broadly found a market that works well for existing customers, but the industry cannot afford complacency. The PPI scandal showed how quickly trust in protection can collapse. Firms that go beyond minimum compliance, and embed good outcomes from the Board to the call centre, will be the ones that help close the gap.

1. An old problem, a more urgent moment

On 21 September, the FCA announced it was partnering across sectors to expand protection insurance coverage for the millions of people without it. The headline figures are stark: around 58% of adults have no life insurance, critical illness cover or income protection, and 59% of that group has never considered taking out cover.

None of this is new. In 2018, the FCA’s independent Financial Services Consumer Panel noted that the protection gap had been debated and researched for many years, to little effect. At that time, two thirds (65%) of UK adults had no protection cover at all. Progress since has been slow. The FCA’s Financial Lives survey found that 46% of UK adults held at least one protection or health insurance product (including private medical insurance) in May 2024, unchanged from 2020, and just 6.2% had income protection.

What has changed is the size of the gap, and the conditions around it.

The gap is widening. Swiss Re’s research shows that in the UK, its Mortality Resilience Index fell from 73% to 58% between 2014 and 2024. In other words, households’ savings, insurance and state benefits now cover just 58% of what they would need if a breadwinner died. Measured as the extra annual premium needed to close that shortfall, the gap has almost doubled over the same decade to around £5.5 billion (USD 7.5 billion). Across advanced European markets, Swiss Re points to stagnant or declining social security benefits as one of the drivers.

Household buffers are thin. The FCA found that 13.1 million people, 24% of UK adults, had low financial resilience in May 2024. One in ten had no cash savings at all, and another 21% had less than £1,000 to draw on in an emergency.

The cost of living squeeze hasn’t gone away. CPI inflation rose to 3.1% in the 12 months to August 2026, up from 2.9% in July and the second monthly rise in a row, and the Ofgem energy price cap rises by 4% in October, taking the typical dual-fuel bill for a household paying by direct debit to £1,723 a year. Inflation is well below its October 2022 peak of 11.1%, but prices are still rising from a much higher base and the pressure is building again.

Debt stress is rising. Lenders told the Bank of England that default rates on unsecured lending increased in the first quarter of 2026, with credit card defaults expected to rise further. In the 12 months to August 2026, one in 360 adults in England and Wales entered insolvency, up from one in 408 a year earlier.

Jobs look less secure. UK unemployment stood at 4.9% in the three months to July 2026, and the number of payrolled employees fell by 101,000 over the year to July. Income is the asset most households depend on, yet income protection is the least commonly held of the main protection products.

Why this is personal

It’s all very well to quote statistics and report on policy debates. But the consequences of the protection gap are all too real, and I know that first-hand.

I am one of the fortunate minority who have benefited from protection cover. In 2023, I was diagnosed with cancer and underwent chemotherapy and radiotherapy. For close to a year, I was unable to eat or talk, let alone work. Without the income protection policy I had through my employer, the financial impact on my family would have been devastating. I dread to think what it would have been like for my wife and young daughter if, on top of the daily worry of my illness, they had carried the burden of making ends meet.

But having benefited from that safety net, I now face the challenge so many people in the UK face: securing protection with a pre-existing condition, without an employer-backed scheme.

I am far from alone. The FCA is rightly focusing on those most exposed: renters, the self-employed, gig economy workers, lower earners and people with pre-existing medical conditions. These groups are also less likely to have employer-provided cover or access to advice.

2. A welcome call to action, and what it needs to succeed

The FCA’s intervention is both welcome and needed, and its plan is sensible. The Money and Pensions Service and the Digital Property Market Steering Group will prompt people to think about protection at key moments, such as becoming a parent or buying or renting a home. The Protection Distributors’ Group will run a consumer awareness campaign aimed at groups less likely to have cover. The FCA will also run a webinar to clear up misunderstandings among firms about its rules, and work with the Association of British Insurers to cut delays in obtaining medical records.

There is no silver bullet, and the FCA doesn’t pretend otherwise. What’s needed is a package of measures. In my view, three interventions matter most.

Innovation in products. The 2018 Consumer Panel paper concluded that offering more of the same is not the answer, and that the industry needs less complex products designed for today’s customers and the modern labour market. That challenge still stands. A gig worker with variable income, or a renter who never has the mortgage conversation where protection is usually sold, needs cover that is simple, flexible and affordable: modular products, cover that flexes with income, and simplified underwriting for people with manageable health conditions. As someone now trying to buy cover after cancer, I know how much that matters. The FCA’s planned TechSprint is a good signal; firms have been asked to express interest by 13 November.

Innovation in distribution. The old industry adage says protection is sold, not bought. Too often, it is neither. Many people who lack cover aren’t rejecting it; they are simply never prompted. Embedding protection conversations in the moments that matter, such as the tenancy agreement, the new baby and the first home, is the right instinct. Firms should build on it through digital journeys, employer channels and partnerships that reach people who will never see an adviser.

A regulator willing to let firms take risk. This may be the most important of the three. Innovation carries risk: a new product may not work as intended, and a new distribution model may attract complaints. If firms believe any misstep will be treated as failure, they will stick with what they know. The FCA says it wants greater innovation and will address misunderstandings about its rules and expectations that may be seen as barriers. That is encouraging. The test will be whether that intent holds when the first well-meant experiment goes wrong.

3. Trust: the foundation everything else rests on

A thriving protection market depends on one thing above all: customers believing the policy will pay out when they need it.

There is good news here. The FCA’s final market study found competition generally works well, although firms were reminded of their obligations under the Consumer Duty and product governance rules. Its interim findings noted that most consumers can claim when they need to, and that the cost of cover has remained stable.

But no firm should take comfort from that. The FCA isn’t planning new market-wide measures, but will take action where firms fall short. And it only takes one high-profile failure to undo years of trust-building across the whole sector.

The industry has seen this before. PPI was itself a form of protection insurance, designed to cover repayments if the policyholder fell ill or lost their job. Between January 2011 and December 2019, firms paid £38.3 billion in refunds and compensation to customers who complained about how it was sold. The damage went well beyond the banks that sold it. The scandal fed a lasting public suspicion that insurance is something sold to you, not something that protects you. Today’s protection firms still live with that legacy.

That’s why complacency is the biggest risk. Firms must keep challenging themselves to act in customers’ best interests and go beyond minimum compliance. That means:

• testing whether products deliver fair value for every target group, not just the average customer;

• treating claims, especially bereavement and serious illness claims, as the moment the promise is kept; and

• designing for vulnerability as the norm, not the exception, given that nearly half of adults showed characteristics of it.

Above all, it means culture. The Consumer Duty is clear that good outcomes are a Board responsibility. But they are delivered in the call centre, in the underwriting decision and in the claims letter. Firms that align those, from the top of the organisation to the front line, will earn the trust that closing the protection gap requires.

The FCA has opened the door. It is now up to the industry to walk through it.