Imagine waking up to a world where insurance regulations feel less like a tangled web and more like a straightforward path – that's the bold promise of the FCA's latest moves to shake things up in the sector. If you're in the financial services game, especially dealing with insurance, you won't want to miss how these changes could slash red tape and save costs. But here's where it gets juicy: not everyone's thrilled with every tweak, sparking debates on fairness and oversight. Let's dive in and unpack the essentials of Policy Statement PS25/21, making sense of it all for newcomers and pros alike.
TLT has highlighted the must-know elements from this game-changing update...
The FCA has rolled out Policy Statement PS25/21, outlining its finalized guidelines and future tweaks aimed at streamlining insurance regulations. Businesses are likely cheering the regulator's push for a more adaptable and balanced framework in insurance, which is meant to cut down on regulatory expenses. The FCA has largely stuck to its initial proposals from the consultation, with only minor tweaks, and has flagged some upcoming evolutions.
Our Financial Services Regulation Partner, Andrzej Wieckowski, shares his take...
“While parts of the industry pushed for even bolder reforms, the shift toward a more flexible and tailored approach is great news for companies, especially those serving commercial clients. Now's the time for firms to really lean into these updates and reap the rewards.”
Ben Player, our Financial Services Regulation Partner, zeroes in on how this affects insurance intermediaries...
“Although some of the adjustments seem geared primarily toward insurers at first glance, intermediaries stand to gain plenty from the new setup – they just need to team up with insurers to make it happen. Since these rules kicked in right away with the Policy Statement's release, there's no delay: review them promptly and implement the necessary shifts.”
The crucial takeaways you can't afford to overlook...
Adapting rules for commercial clients
- Previously, the definition of 'contracts of large risk' forced companies to treat certain savvy business customers with the same strict rules as everyday consumers, which often felt excessive and out of proportion.
- The updated rules differ subtly from the original consultation draft. The FCA has divided the definition into two parts:
** Specialist risks contracts: This fresh category matches the specific product types from the old 'contracts of large risk' idea. For instance, it covers things like railway vehicles, airplanes, vessels, goods on the move, aviation liability, ship liability, and insurance for credit and suretyship where the policyholder is involved in particular specified activities.
** Larger commercial customers: This now ties into the DISP rules about whether business clients can file complaints with the Financial Ombudsman Service. For policies with multiple holders, the new benchmark applies solely to the primary policyholder.
- This adjustment should be a relief for firms, allowing them to standardize the level of safeguards they provide to clients without juggling mismatched thresholds between ICOBS, the Consumer Duty, and complaint processes.
- Companies aiming to benefit from the 'Larger commercial customers' redefinition must figure out how to gather and document proof that the client meets the criteria – the Policy Statement refers to this as the 'SME watershed' details. This is key because firms used to assess this under DISP only when a complaint arose, not at the contract's start. To clarify for beginners, think of it like checking a customer's business size upfront (e.g., annual turnover over a certain amount) to decide protections, rather than waiting for disputes.
And this is the part most people miss: how these tweaks could reduce unnecessary bureaucracy for mid-sized enterprises, potentially lowering premiums for businesses that qualify as 'larger.'
Co-manufacturers
- A positive shift is the ability to name a single lead entity to handle all compliance duties for insurance manufacturers under the Product Intervention and Product Governance Sourcebook (PROD 4).
- The FCA has enacted this exactly as proposed, limiting lead manufacturer roles to insurers or Lloyd's managing agents.
- But here's where it gets controversial: Some are disappointed that intermediaries can't step into the lead spot, especially those working with Managing General Agents (MGAs) who often drive product creation and management in practice. The FCA worries that without an insurer ensuring fair product value, risks could emerge. Industry voices are already advocating for change, and the FCA hints at revisiting this if market reviews show resolved concerns.
- Businesses should also heed the FCA's advice on data collection and aggregation when one party takes the lead (see the new PROD 4.2.13B G in the handbook).
- While the FCA explored letting only the lead manufacturer handle ICOBS disclosure documents, it opted against altering the ICOBS rules.
Is this exclusion of intermediaries a missed opportunity for innovation, or a necessary safeguard? We'll explore that debate further.
Custom-tailored insurance agreements
- As anticipated, the FCA has mostly adopted the consulted rules with just small refinements.
- The goal is to clarify the framework so more firms can utilize it effectively.
- The FCA offers clear guidance: Bespoke contracts are those made uniquely for a client based on their specific needs, not marketed broadly. However, a company can still advertise its ability to craft personalized policies in niche areas without undermining the bespoke nature.
For example, imagine a business needing coverage for a rare vintage car collection – a firm could create a one-off policy just for them, advertising expertise in specialty vehicle insurance without offering it as a standard product.
PROD 4 periodic reviews
- The FCA has eliminated the mandatory annual review cycle for PROD 4 assessments of non-investment insurance products.
- Instead, creators must evaluate the right review pace based on the product's risk profile and harm potential.
- Distributors face similar expectations for checking their product sales setups, which might not sync with the manufacturer's reviews. Insurers and intermediaries need to collaborate to stay compliant.
- New guidance also covers data sharing between insurers and intermediaries when a lead firm is involved.
This flexibility could mean reviews every few years for low-risk policies, like standard home insurance, saving resources while keeping safety in check.
Ditching the yearly 15-hour CPD mandate
- The FCA is axing the 15-hour continuing professional development rule and its recording obligations for insurance and funeral plan distribution.
- Firms still need to ensure staff get ongoing education, but they'll decide for themselves if it's adequate and relevant.
Future reforms on the horizon
- GAP insurance: In 2026, the FCA will determine if product-specific rules for Guaranteed Asset Protection (GAP) insurance need updates.
- Non-UK clients: Separately, the FCA has announced a consultation in Q2 2026 to exclude non-UK business from the Consumer Duty's scope. It'll also examine ICOBS and PROD applications for overseas operations.
- Disclosure rules: Amid consultations on payment protection insurance and pure bred animals in CP25/37, the FCA will consider easing insurance disclosure requirements. This could simplify client experiences – a step forward for smoother transactions.
- Client categorization: Even post these changes, customer classification rules remain complex, so the FCA plans to explore simplifications or extra guidance.
- Reporting: Acknowledging data load, especially pricing submissions, the FCA won't tweak rules before March 2026 but may adjust for 2027 reporting.
Quick overview...
Publication link: Simplifying the insurance rules (https://www.fca.org.uk/publication/policy/ps25-21.pdf)
Published date: 9 December 2025
Who published it? Financial Conduct Authority
Publication type: Policy statement
Key dates? 9 December 2025 – rules effective immediately
Relevant to? Insurers, Insurance intermediaries
Authors: Andrzej Wieckowski, Ben Player, Daniel Meyer, Nikesh Shah
This piece offers general insights based on our understanding of the law and practices as of December 2025. For tailored situations, seek specific advice. Check our terms & conditions for more.
What do you think – does the FCA's approach strike the right balance between flexibility and protection? Or should intermediaries have more say in co-manufacturing roles? Share your views or disagreements in the comments; your perspective could fuel the ongoing dialogue in financial regulation!
