The Financial Conduct Authority (FCA) has announced plans to remove outdated or duplicate requirements from its insurance rulebook, aiming to reduce costs and improve access for businesses and consumers who rely on insurance to manage risk, while still ensuring appropriate levels of protection.
Matt Brewis, director of insurance at the FCA, commented, “We are stripping back our insurance rulebook by removing ineffective, outdated or duplicated regulation, as part of our drive to become a smarter regulator and support growth.
“We have listened to industry and we are taking action – in doing so we will reduce regulatory costs and increase the competitiveness of the already world-leading UK insurance sector, while maintaining vital protections for smaller customers.”
The FCA is proposing a new definition to identify large commercial insurance customers who should be excluded from its conduct rules. In addition, it is considering further measures that could benefit the broader insurance market. The regulator is also seeking feedback on whether certain rules should apply only to UK-based customers.
Caroline Wagstaff, CEO of the London Market Group, has commented on the FCA’s announcement of a consultation on simplification of insurance rules, stating, “We welcome the FCA’s consultation as important progress in achieving a more proportionate regulatory system for the London market.
“A new definition of large commercial insurance customers is particularly welcome. If applied consistently across the rulebook, it will allow the regulator to focus on protecting the retail and SME consumers who really need it, while reducing unnecessary regulatory requirements for corporate clients. The desire to remove further regulatory duplication, where the client or the risk is outside of the UK, is a positive recognition of the need to be more internationally competitive.”
“We fought hard for the secondary competitiveness and growth objective because we believed it would kick start a change in regulator culture. This consultation is proof positive that it is working and highlights the benefits of moving away from a ‘one size fits all’ regime for insurance.
“We are encouraging all London market firms to respond to the FCA’s consultation and we hope that we can move swiftly to an ambitious policy statement which will drive investment and growth in the UK.”
Meanwhile, Loka Venkatramana, Senior Consultant at Pathlight Associates, said, “As part of its 2025–2030 strategy to promote international competitiveness and improve customer outcomes, the FCA is re-examining its regulatory approach to commercial non-investment insurance.
“A key area of focus is the definition of ‘large risk’. The FCA aims to sharpen this definition to better distinguish it from SMEs, ensure consistency across its rules, and enable proportionate consumer protections where they are most needed. This clarity is intended to support innovation and remove regulatory uncertainty for commercial insurers and intermediaries.
“The FCA is also reassessing the rules around co-manufacturing and the treatment of bespoke contracts within the PROD framework. This is part of a wider effort to ensure that regulatory expectations reflect the complexity of commercial insurance markets, without stifling flexibility or customer-centric product design.
“While these proposals are welcomed, their ultimate impact remains uncertain. The insurance sector faces ongoing regulatory change and limited access to consistent data, which may challenge effective implementation. The FCA’s delivery on its strategic aims, especially improving market confidence and reducing harm, will depend on clear rules, proportionate oversight, and meaningful engagement with industry.”
Richard Jackson, managing consultant at Capco, said, “There will be a positive impact to the insurance industry from the steps announced by the FCA. The industry will likely welcome any de-duplication and simplification of the current rulebook, as this will address longstanding concerns raised previously from insurance firms about the length and complexity of the FCA’s rules and guidance.
“The regulator is seeking to recognise these concerns raised by the industry and hopes moves such as this will help to meet its strategic desires to both foster UK sector growth and become a smarter regulator.”
Jackson continued, “At the moment, these regulatory changes are only proposals and may not come into force. For now, we suggest firms stick to their status quo. That means ensuring they have a robust product governance operating model, being clear about the roles and responsibilities of respective insurers when co-manufacturing products and continuing to organise and invest in suitable training and development programmes for their employees.
“Firms will all be at differing stages of maturity across all these aspects, so we encourage them to stick to their current plans while the proposals are consulted on over the remainder of the spring and early summer.
“The regulator has already said in its Consumer Duty feedback to the industry that it will utilise an accelerated consultation process to simplify its requirements where there is a clear case for change and stakeholder appetite to go quickly.
“It has signposted this will likely include a face-to-face event in summer 2025 and more clarity on action plans in September 2025, so firms should continue to engage proactively with the regulator over the next six months via its consultations, face-to-face sessions and regulatory speeches. Firms should then assess and, where appropriate, adjust their own action plans once the regulator announces its plans in September.”
Jackson concluded, “There is an obvious risk that any loosening of product value checks could potentially heighten the risk of customer harm, so the industry’s input on the regulator’s proposals will be interesting.
“The FCA will leave firms to determine their own approaches based on their self-assessment of the risks posed by their products, which carries risk that a particular interpretation by a firm isn’t the correct call.
“Firms should utilise their Three Lines of Defence model to ensure they have a robust product governance operating model in place and that any relaxation of product checks stands up to internal scrutiny across the second and third lines.
“Relaxation of the frequency of periodic checks needs to be commensurate with the potential risk of harm posed to the intended target market, particularly if that target market is a firm’s retail customers and SMEs.”
Arabella Ramage, Director of Legal and Regulatory Affairs, Lloyd’s Market Association (LMA), also commented, “The FCA consultation paper Simplifying the insurance rules published today shows that it has been listening to the wholesale market’s concerns about the absence of differentiation in regulation between consumer and other insurance business.
“The LMA has been a key stakeholder of the FCA in the run up to this consultation, having hosted and facilitated roundtables with the FCA to discuss what is proportionate and practical. This is a welcome change of approach from the FCA. The proposed new definition of commercial risks business, alongside a widening of the bespoke product carve out, should be a material difference for our members in the Lloyd’s market.
“Aligning the rules on product governance to Financial Ombudsman eligibility will help to make the rules more proportionate going forward. The proposal that in a subscription market the followers should be able to rely on the lead insurer for compliance with the rules is also welcome. This should make it easier and less duplicative for insurers going forward.
“But the proposal that the lead should be the sole party responsible to the insured for redress may need the Lloyd’s market to think about new lead/follow clauses. There is a missed opportunity to recognise the role of managing general agents and their role in developing products, by excluding brokers from being designated the lead. Our members will welcome product monitoring moving from a uniform 12 months to a frequency that is appropriate based on the risk of consumer harm.
“Finally, the consultation on disapplying FCA rules where customers and insured risks are located outside the UK is also welcome. This is something we have been requesting for some time, recognising that many jurisdictions have strong protections in place, policed by their own regulators.
“With over 85% of Lloyd’s business originating from outside of the UK, the possible changes in geographical scope could be a significant benefit for the Lloyd’s market. We will, therefore, urge the FCA to take this forward as soon as possible and use its accelerated consultation process.”
