FCA Consults on Simplifying its Insurance Rules.

On 14th May 2025,  the FCA published its Consultation Paper 25/12: Simplifying the Insurance Rules, outlining plans to simplify its insurance rulebook, removing what it described as “ineffective,  outdated, or duplicated regulation” in a bid to reduce costs and improve access for consumers and businesses. The purpose is also to limit the application of Consumer Duty into insurance commercial business.

Compliance Angle urges all insurance firms to read this Consultation and to respond where possible, particularly if you feel that there are further simplifications that can be made. The consultation closes on 2 July 2025.

What are the proposals?

The FCA are proposing the following:

1. Creating a new definition (“contracts of commercial or other risks”) to identify large commercial insurance customers who should not be captured by its conduct rules.

• Some larger commercial businesses will no longer be covered by protections intended for retail customers.

• A new definition, “contract of commercial and other risk,” will replace the existing “contracts of large risks” definition.

• This new definition aligns the scope of insurance rules with the Financial Ombudsman Service (FOS) rules on eligible complainants.

• As a result, more commercial customers will fall outside the scope of insurance rules due to tighter eligibility criteria:

  • Employee threshold reduced from 250 to 50 employees.

  • Turnover threshold reduced to £6.5 million.

  • Balance sheet total reduced to £5 million.

• Existing product-based exclusions (e.g. marine and aviation contracts) remain fully in place.

• This change is likely to be welcomed by the market but its overall impact should not be overstated:

  • FCA analysis suggests only a minority of SMEs will fall outside the scope.

  • For many firms, where products are sold to both larger and smaller SMEs, differentiating between them may not be commercially worthwhile.

2. Removing the requirement for firms to review the value of their product at least every 12 months, leaving it up to firms to decide how often to review them based on the risks and characteristics for each product.

• Review frequency must be based on:

  • The potential for customer harm, and

  • The specific risks associated with the product.

• Firms must record and document their rationale for the chosen review frequency.

• This change is expected to have positive outcomes:

  • More time can be allocated to each individual assessment.

  • Assessments may become more thorough and higher quality, with improved challenge and oversight.

3. Giving firms flexibility to appoint one lead insurer to comply with its rules in instances where more than one party is involved in designing the insurance product.

• The aim of this change is to reduce duplication in product governance and fair value responsibilities.

• It will be possible for a single firm to take responsibility for PROD 4.2 compliance.

• This simplification is only available in limited scenarios, specifically when:

  • An insurer or Lloyd’s Managing Agent agrees to take the lead, or

  • The co-manufacturers are part of the same group.

• The FCA has not extended this option to intermediary co-manufacturers, such as MGAs.

• As a result, most MGA arrangements will see little benefit from this change.

• The current duplication of effort between MGAs and Capacity Providers is unlikely to be resolved.

• MGAs are therefore expected to respond to the consultation, urging the FCA to reconsider this area.

• Without further changes, the impact of this measure will be minimal.

4. Broadening the scope of bespoke contract exclusions and making them easier for all insurers and brokers to use (the FCA explains that “bespoke” contracts are built to suit one customers upon that customer’s request, which means they automatically have protections product governance rules provide).

• All bespoke non-investment insurance contracts are now clearly excluded from PROD 4 requirements.

• The FCA has clarified its guidance on what constitutes a bespoke contract, including:

  • A bespoke contract can be an adaptation of a standard contract or a completely new set of terms.

  • Selecting options within a standard contract (e.g. excess level) does not qualify as bespoke.

• This clarification aims to ensure firms are clear on what falls within the scope of the exclusion.

• Although many firms may already follow this approach, the update provides reassurance and confidence to those previously uncertain.

5. Removing the specified minimum hours of training and development required for insurance employees.

• The FCA is removing the 15-hour Continuing Professional Development (CPD) prescriptive rules.

• Corresponding monitoring and record-keeping requirements for staff involved in insurance distribution are also being removed.

• Firms will have the flexibility to decide how to ensure their staff maintain competence.

Compliance Angle’s view and next steps.

The FCA’s proposed changes will reduce certain burdens in insurance regulations, however, there remains greater potential for the FCA to further de-duplicate co-manufacturing responsibilities and limit the scope of rules concerning international business.

We highly encourage trade bodies and firms to submit their responses to the consultation, as there is a chance to improve the proposals overall.

Contact us and schedule a free consultation to find out how Compliance Angle can help you stay on track and ahead of the game.

Call us on 07427792594 or send us an email at info@complianceangle.co.uk