In Focus: Protecting your client  

New FCA rules are 'seismic change' for protection industry

Loaded premiums

Timpson has worked in the financial services industry for 40 years, 30 of which he spent at Scottish Widows, most recently as its head of financial protection, technical and industry affairs.

He left the provider last year to become a consultant and sits on the FCA's Financial Services Consumer Panel.

Timpson has held a number of public office, industry and charity sector roles, most notably Cabinet Office Disability and Access Ambassador for both the insurance and banking sectors; Prime Ministers' Champion Group member for dementia communities; and founder and chairperson of the Access To Insurance Working Group.

Alongside other industry experts, Timpson has been vocal about the perceived unfairness in loaded premiums, which he believes could be stamped out by the consumer duty and its requirement that products must deliver value.


Timpson: Commutation of income to a lump sum should be advised

Loaded premiums are an additional percentage fee charged on the sum assured in a mortgage protection policy by the insurer each month. 

This percentage fee is distributed to a number of stakeholders, including the re-insurer, insurer, network, and the appointed representative firm or adviser - on top of their commission or fee.

But advisers have hit out against the practice in the past, questioning the rationale often cited by providers that the extra cost reflected added value.

Timpson said: “I actually think [loaded premiums] are unethical. I think it'd be difficult to justify that presents some real value, particularly where you or your firm are not actually giving advice to your customer.”

Stacy Reeve, senior policy adviser at the Association of Mortgage Intermediaries, agreed. She said: “It will be harder to justify loaded premiums under the consumer duty.

"Intermediary firms should already be assessing as part of fair value whether the remuneration they receive on protection and general insurance products bears a reasonable relationship to their firm’s actual costs, their level of involvement, or the benefit added by them as part of distribution of the product.

"The consumer duty will add another layer on this. I expect firms to be challenged on loaded premiums, both from an internal viewpoint and by product providers who are undertaking their own value assessments."

Protection products, and whether they are advised or not, will require clear disclosure under the consumer duty rules, said Timpson.

This will be particularly important when the underwriting is non-standard, as not only is the client more likely to be vulnerable, they might also feel uncomfortable asking for an explanation.