Simplifying insurance rules: What the FCA’s new proposals mean for the industry
The FCA is proposing a simpler, more flexible approach to insurance regulation—aimed at reducing over-compliance and focusing on what really matters: fair value for customers.
In its webinar on Wednesday last week, the FCA debunked common industry myths and set out clearer expectations for both manufacturers and distributors. In addition, it also clarified that it would be seeking to remove the current annual review process for products, with firms being given more autonomy over which products they review and how frequently.
The webinar was a good opportunity for the FCA to set out its expectations clearly to the industry and allow audience members to provide their questions directly to the FCA. The FCA recognises that the current rules have resulted in some needlessly resource-intensive and cumbersome processes. By removing the mandated annual review period and providing firms the autonomy to pay due regard to the level of risk posed by product, it hopes to make compliance with the rules simpler.
The FCA is also cognisant of some firms’ gold-plating or over-complying and the new rules seek to address this by making responsibilities of the various parties within the distribution chain even more clear.
Key Takeaways from the FCA’s Consultation (CP25/12)
No more one-size-fits-all reviews
Firms can now tailor product reviews based on risk—no need for annual reviews across the board and reviews can be tailored to the type of product and its associated risk i.e., lower risk products, less labour and resource intensive to produce whereas higher risk products might require more resource, time and effort.
Myth-busting fair value assessments
Manufacturers need to collect extensive information from the distributor every time they review the product. The FCA has clarified this approach may be appropriate for new or high-risk products but for low risk/existing performing products, it can simply be asking the distributor if anything has changed.
Distributors need to undertake full fair value assessments. The FCA has clarified that distributors only need to have regard to their distribution costs and the impact they have, i.e. is there a risk a product which is good value is going to cease to be? This could also mean where it is packaging products (e.g. including Add Ons or Premium Finance)– and the distributor challenging itself on whether it is providing fair value by doing so. Distributors are expected to support manufacturers by sharing its “frontline” insights.
Distributors need to obtain the manufacturer’s fair value assessment. The FCA has clarified that Distributors do not need to be provided with the manufacturer’s fair value assessment. The manufacturer is responsible for fair value, but the distributor will need the relevant granular product and target market information to distribute to the target market.
Every single product needs to be reviewed separately. The FCA has clarified that not all products need independent or formal reviews, similar products can be grouped together – aligning with the FCA’s current Consumer Duty FVA requirements
Focus on outcomes, not tick-boxes
The FCA wants to see clear decisions, documented rationale, and real action—especially for high-risk or new products.
Clarified roles
Manufacturers own the fair value assessment for the product and must continually review the product is performing as intended. It is not necessary for the Manufacturer to obtain the same information from distributor every year, if information hasn’t fundamentally changed. However, it is fundamental that there is that established line of communication both ways to escalate any risks or issues.
Distributors must understand the product, pricing, and target market—but don’t need full MI or detailed breakdown of costs associated with the product. It is not necessary for distributors to be provided with the FVA. However, distributors should ensure that if the product is packaged, they need to consider the whole package in its entirety.
Co-manufacturing made simpler
A lead firm can now take full responsibility for complying with the rules, with others cooperating.
Bespoke & commercial products
New clarity for tailored products for individual customers (i.e., those that cannot be marketed for mass general distribution). The current PROD rules have an exemption for bespoke products, however, it is limited to distributors. The FCA states that feedback from the industry suggests that the current exemption is rarely used as it doesn’t often fit the various scenarios. The FCA’s newly introduced bespoke definition means where the starting point is the customer and product has been developed around them, (or a previous customer where tweaks made to make it relevant to that customer) – that product does not need to go through the product governance process.
For Commercial Customers, there is currently an informal SME watershed in place – e.g. where a customer stops being a “consumer” and steps into the “large commercial space”.
The FCA is keeping the structure for large commercial risks but is proposing to align the threshold (balance and number of employees) with the DISP rules to make it easier for firms. The regulator recognises that some customers will as a result will not receive the protection of the Consumer Duty that they’ve had previously, however, those customers are not typically eligible for FOS protection anyway and therefore this change is likely to be proportionate.
CPD requirements
Although not covered in the webinar in great detail, the FCA also is proposing to remove the minimum 15 hour CPD requirements. While for some roles there will still be an expectation that they continue with the 15 hours of CPD (and in some cases more to maintain ongoing competence), for some firms this will bring a sense of relief, particularly for those firms where financial services is an ancillary product.
Conclusion
The FCA’s proposals certainly mark a significant shift toward a more flexible, outcomes-focused regulatory framework—one that aims to reduce unnecessary burdens and encourage firms to exercise judgment based on risk and context. However, while this flexibility is designed to streamline compliance and reduce over-engineering or gold-plating as it were, it does not automatically make the rules simpler. In fact, by removing prescriptive requirements such as the annual product review, and placing greater emphasis on firms’ discretion, the FCA is effectively transferring the complexity from the rulebook to the decision-making processes within firms.
This shift demands a higher level of internal governance, documentation, and accountability, particularly as firms must now determine what is “appropriate” in each case and appropriately rationalise this. For some, especially those with limited compliance infrastructure, this could introduce uncertainty and increase the risk of misjudgement. The danger is that in trying to avoid a tick-box culture, the industry may instead face a patchwork of inconsistent practices and interpretations.
From our experience within the market, since the implementation of IDD to the enhanced PROD rules and the Consumer Duty’s cross-cutting rules, we know that the product governance rules have consistently been an area which firms have struggled to understand and get right. Therefore, while the simplification of the rules is welcome, ultimately, the success of this approach will depend on how well firms understand and implement the FCA’s clarified expectations and how effectively the FCA supports them through guidance and supervision. Flexibility, while undoubtedly valuable and necessary, must also be underpinned by clarity and confidence if it is to truly simplify rather than further complicate the regulatory landscape for insurers.
Next Steps
The FCA is calling for feedback—this is your chance to shape a more agile, customer-focused regulatory landscape.
Consultation closes 2 July 2025. Final rules expected Q4 2025—with no implementation period. Firms can adopt changes immediately or continue current practices.