FCA confirms insurance rule simplification

The FCA has confirmed changes to its rules for insurance firms, which will:

• clarify which rules apply to commercial insurance: the rules create an “SME watershed” so that smaller commercial customer remain well protected – broadly aligning the threshold with the FOS eligibility criteria. Following consultation, it has decided to split the “large risks” concept into two definitions – of “specialist risks” and “larger commercial customers”;
• let a lead firm take responsibility for product design and approval: the FCA has implemented its proposals, but has not taken forward requests from respondents that would specifically acknowledge that MGAs could be the lead. At the moment, it sees too many risks with intermediaries, including MGAs, being able to be the lead firm;
• broaden and clarify the scope of the bespoke contracts exclusion, so that both insurers and intermediaries can use it;
• let firms decide how often to carry out product reviews, and document the rationale behind their decisions: the FCA says the period should be based on the potential for customer harm the product poses. The rules also require manufacturers to share information on review frequency with distributors;
• remove the notification and reporting requirements for employer’s liability insurance; and
• remove the minimum CPD hours requirement, to allow firms more flexibility to tailor training to their specific requirements, while ensuring employees do undertake appropriate training.

There will also be change in the future. As well as the wider technical changes the FCA has also proposed today (on removing certain product-specific rules) its consultation on rationalising conflicts of interest rules and its consultation on deleting further regulatory returns, it will make further changes next year to cut further unnecessary requirements, which will follow a review of how FCA rules apply internationally, and how the Consumer Duty applies and should be applied in practice.

It also plans a review of:

• the sale of GAP insurance: while it sees good arguments for removing the GAP rules, it will make a decision next year on whether it is safe to do so – the question is whether its 2024 intervention is enough to have addressed the harmful practices that had developed;
• conduct rules applying to business outside the UK: generally there is support for disapplying the rules for non-UK business but the FCA again is not yet ready to make the change and will consult in Q2 2026 on how to do so; and
• information disclosure requirements and whether pricing data is reported in the best way.

The new rules have immediate effect.