Simplifying the Insurance Rules — A major regulatory shift for UK insurers

Simplifying the Insurance Rules — A Major Regulatory Shift for UK Insurers

Late last year, the Financial Conduct Authority (FCA) published Policy Statement PS25/21. This statement signalled a significant shift in the regulator’s decision to streamline insurance regulation following the introduction of the Consumer Duty.  

This is a move away from prescriptive conduct requirements toward more proportionate regulatory framework that balances consumer protection with flexibility and a commercially focused system designed for an innovative and world-leading insurance market.

Why the change?

The objective for PS25/21 was to reduce the complexity of regulation (and in doing so reduce cost) as well as focus more on risk-based governance, product quality and consumer outcomes. This is a significant shift away from the formal compliance rules and specific time-based requirements to a regime that focuses on the consumer and the practical outcomes. It is hoped that this change will bring about a lighter but more focused regulatory requirement on insurers and prove easier to administer for the FCA – all the while ensuring that the UK’s leading insurance position underwriting complex and specialty risks can continue to promote growth and innovation.

The changes

Co-manufacturing – previously, where multiple parties created an insurance product, both had to each meet governance and regulatory obligations. Now, firms can appoint a lead manufacturer who will be responsible for complying with the products governance requirements in accordance with the FCA Product Intervention and Product Governance Sourcebook.

Flexible product review – previously insurance firms were required to review the value and design of their products every 12 months. PS25/21 abolishes this requirement, instead replacing it with a risk-based approach where the power to determine review frequency rests with the firm depending on the characteristics of the product.

Bespoke contract exclusions – where a policy is tailored to the specific needs of large or specialist customers, these are now excluded from certain conduct requirements because they are bespoke and not sold through standard distribution channels. Whilst this will make distribution of tailored products to sophisticated commercial clients easier, the FCA has continued to emphasise protections for vulnerable or less sophisticated buyers.

Removal of reporting requirements – PS25/21 has abolished several reporting requirements which have previously been viewed as duplicative or obsolete. These include CPD hour requirements (the 15-hour annual requirement has been scrapped) and employer’s liability insurance notifications (firms no longer need to submit notifications and annual returns for employer’s liability insurance). The FCA has been keen to emphasis however that this does not mean that staff no longer need to be trained, but have left the extent of the training to be decided by the firm.

What this means and the future

Interestingly, many of the changes brought about by PS25/21 are optional and businesses can choose to implement them based on their particular business model and client base. This is likely to see varying levels of adoption based on whether a business is likely to see any reduction in costs.

The FCA plans to implement further regulation during 2026 and beyond including a consultation on the application of the Consumer Duty and conduct rules in respect of non-UK businesses. The FCA is also considering whether data collection requirements can be reduced further without compromising regulatory oversight.

It is clear that PS25/21 represents a significant move for the regulation of the insurance market. The FCA has aimed to reduce regulatory burden, promoting innovation and competition, while maintaining customer protections. It is a welcome move and one which puts greater trust in insurers to continue to compete on an international stage.  

Kyle Lecuona

Barrister

London

The above article does not constitute legal advice. Every dispute is unique and expert advice should be sought in respect of your specific circumstances.