FCA consults on insurance rule simplification

The FCA is consulting on its promised plans to disapply its insurance conduct rules to dealings with large commercial customers and strip out other unnecessary requirements.

In its wide ranging consultation the FCA proposes:

• a new definition of a “contracts of commercial or other risks” which will mean the “contracts of large risks” definition will stay, but will provide a consistent method of identifying larger commercial insurance customers. The broader definition will align with the concept of “eligible complainant”. This will enable consistent definitions to be used across the Handbook and allow the FCA to remove the need for many regulatory protections for these large customers. But firms can decide for themselves whether they want to apply the protections to a broader range of customers given that many do not distinguish between different sizes of commercial customer. The new definition will include, broadly, transport insurance contracts, certain credit and suretyship contracts and any other non-investment insurance contract where the policyholder meets certain criteria, such as being an enterprise that is not a micro-enterprise or small business;
• removing the requirement to review product value every year and allowing firms more flexibility in how often it is appropriate to carry out value reviews;
• giving firms flexibility to allocate compliance responsibility to one insurer where several parties are designing a product, such that one party would be responsible under the PROD requirements thereby removing the current duplication of process and attendant costs. But firms can choose to follow the current rules if they prefer or, for instance, where appointing a lead insurer would not work because the product is broker-led;
• making it easier for insurers and brokers to use bespoke contracts by broadening the scope of an exclusion so that all bespoke contracts are excluded from PROD 4. The FCA is also proposing guidance on what contracts are bespoke contracts;
• removing duplicative reporting and notification requirements relating to employers’ liability contracts; and
• removing the specified minimum number of CPD hours and allowing firms to decide what requirements to impose on their staff.

Outside of the specific proposals, the FCA also seeks views on:

• whether it should disapply its rules for all business outside the UK; and
• whether certain rules that apply to particular types of contracts, specifically PPI, GAP insurance and in relation to packaged bank accounts are still relevant given changes in the overall regulatory environment and the market.

Consultation closes on 2 July.