Simplifying the Insurance Rules

The FCA has issued a Consultation Paper on 14 May 2025 (CP25/12) aimed at simplifying insurance rules, especially for commercial insurers. This follows the July 2024 Discussion Paper (DP24/1) and refines many of its suggestions based on industry feedback.

Key changes relevant to all insurers include the establishment of a "lead manufacturer" role in co-manufacturing arrangements, greater flexibility for firms to determine product review frequencies and changes to the training and competency requirements. The consultation also covers issues that are specific to commercial insurers including: a new definition of commercial insurance, some exemption for bespoke contracts, adjustments to disclosures and reporting.

• The proposals will be positively welcomed by both commercial and retail insurers but determining the impact of the changes will require some careful analysis. Importantly, most proposals do require firms to make strategic decisions as to whether to adopt the changes in the first place.
• For example, the FCA understands some firms will choose to keep applying the current level of conduct protection to their policyholders regardless of the change in commercial insurance definition. Offering conduct protections over and above FCA requirements could be used by some firms as a differentiator in the market and this should be weighed against the potential compliance savings in moving these customers out of their current protection levels. Crucially, making the most of this proposal is also dependent on the ability of firms to gather the right data to identify the customers in question which might not be feasible in the short term or require a degree of investment. Firms whose business model includes commercial customers who are now out of scope may consider what operating model changes to make to maximise efficiency.
• The proposal to enable firms to select a co-manufacturing lead to take responsibility for compliance with product value assessments is likely to affect market dynamics and over time might result in the expectation that insurers always take the lead¹. Firms may consider whether this has a commercial impact given the new work allocation between insurers and brokers.
• Finally, the proposals to allow firms to determine the frequency of product reviews will result in more work in the short- to medium term for firms as they work on setting out their frequency determinations, amend their current product review frameworks and tools, and communicate with the relevant counterparties across the distribution chain to align approaches on product risk ratings, review frequencies and what it means for information sharing. Whilst we expect this change to reduce the number of reviews per year, some will need to be carried out more than once a year.

In conclusion, firms will have a lot to consider before deciding if and how to onboard the proposed changes to ensure they can make the most of the potential opportunities these changes might bring to the business.

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