Simplifying Insurance Rules

|Date
|29th January 2026 

Following on from their Consultation Paper last year (cp25-12.pdf), and as outlined in our email in August last year, the FCA has published its Policy Statement PS25/21: Simplifying the insurance rules.

The policy statement looks at five key areas:

  • Determining which rules apply to commercial insurance (SME watershed)
  • Product governance rules changes
  • ICOBS disclosure and Employers’ Liability notification and reporting requirement
  • Minimum knowledge, training and competence requirements for employees of insurance and funeral plan firms
  • Options for further changes – areas discussed in the consultation paper and future plans
 
The FCA’s aims with these changes are:
  • A more balance based on customer size. Recognising that needs, resources and expertise differ between consumers, small commercial and larger commercial customers, the FCA wants to move away from a one size fits all approach.
  • More flexibility by giving firms greater flexibility on training and around the product governance rules.
  • To promote proportionality by removing the 12-month product review requirement and the outdated reporting obligations under Employers Liability related rules.
 
As always, we’d recommend you read the Policy Statement but, here are the key areas of interest. PS25/21 is the FCA’s most significant conduct ‘simplification’ exercise for insurance firms since Consumer Duty. 
 
Although it’s trying to simplify things for firms, it is clear that the FCA has not lowered expectations. Where it has removed some prescriptive process rules and replaced them with judgement-based obligations. 
 
Firms that relied on tick box or mechanical compliance continue to risk being exposed but firms with strong governance will gain flexibility. The effect of these changes will depend on whether you are commercial or personal lines, but one constant remains, you are still expected to evidence outcomes, decision-making, and oversight.
 
Being brutally honest, it’s unlikely that these changes will bring about any significant changes to how you operate day-to-day, but hopefully, you will find some relief in the changes around product governance and CPD requirements.
So, what’s changed?
 
 
Commercial insurance – the SME “watershed”
The FCA is updating its definitions around commercial customers, which will impact how you assess client classifications and regulatory obligations. The existing term “contracts of large risks” is being replaced with two clearer categories:
 
1. Specialist Risks Contracts
 
This includes policies covering:
  • Railway rolling stock
  • Aircraft
  • Ships
  • Goods in transit
  • Aircraft and ship liability
  • Credit and suretyship
 
2. Larger Commercial Customers
 
These are clients purchasing general insurance products who exceed the DISP eligibility thresholds (DISP 2.7.3), aligning with how eligible complainants are currently defined. This means that any business you write outside of these two definitions will now fall into the scope of the Consumer Duty. Simply put, any business with fewer than 50 employees, with an annual turnover of less than £6.5 million and a balance sheet of less than £5million will be in scope of the Duty.
 
Large commercial customers will now fall outside the scope of the Consumer Duty. This is an acknowledgement of their greater sophistication and the reduced need for retail-level protections.
 
 
How this impacts on you 
You’ll need to reassess which clients remain in scope for Consumer Duty compliance, and if any now fall outside, based on the new definitions. You should ensure that you have a consistent, defensible, and evidenced approach to customer classification. Misclassification (especially for group policies, multi-insured risks, SPVs, or schemes) will be treated as a governance failure, not an 
administrative error.
 
 
Product governance (PROD 4) changes
The FCA is introducing a new option that allows firms to appoint a single lead manufacturer under PROD 4.2. 
 
This is aimed at simplifying governance for co-manufacturers and reducing duplicated efforts. Under the new rules:
  • Insurers and Lloyd’s managing agents can act as the sole lead manufacturer, taking full responsibility for complying with PROD 4.2.
  • However, intermediaries and Managing General Agents (MGAs) are not eligible to be lead manufacturers.
 

If a firm chooses to appoint a lead manufacturer:

  • That lead firm is fully responsible for meeting all PROD 4.2 requirements.
  • The non-lead co-manufacturers must support the lead by cooperating and sharing relevant information when requested.
 

Greater accountability. It’s important to note:

  • Appointing a lead manufacturer is optional.
  • If no lead is appointed, all co-manufacturers remain jointly responsible under the existing PROD 4 rules.
  • The FCA has not changed the ICOBS disclosure rules. All co-manufacturers must still comply, and the idea of only the lead producing disclosure documents has been dropped.
 
 
Bespoke contracts exclusion expanded
The bespoke contracts exclusion from PROD now clearly applies to both insurers and intermediaries.
 
The impact of this will be:
 
  • Relief for genuinely negotiated one-off placements.
  • The burden shifts to firms to prove why a contract is bespoke.
 
It’s worth noting that “Non-standard” is not the same as bespoke. The FCA expects documentary evidence of  negotiation and tailoring as evidence of a product being “bespoke”.
 
 
Product review frequency becomes risk-based
The FCA’s move to scrap the mandatory 12-month product review is a positive step. It gives manufacturers the flexibility to set review frequencies based on the product’s potential for customer harm.A positive change for brokers (distributors) will be the changes that allow you to take a similar risk-based approach as distributor, when reviewing their distribution arrangements. Currently, under PROD 4.3, you must review your product distribution arrangement in relation to a non-investment insurance product at least every 12 months. The Policy Statement confirms that the minimum 12-month timeframe is removed. Now, you will need to determine the frequency of the reviews based on the potential for customer harm, arising from risk factors associated with your chosen product distribution arrangements.
 
That said, if you wanted to retain the minimum 12-month review period, you are free to do so! 
 
This change helps reduce unnecessary work across the industry and supports a more targeted use of resources.
 
With the FCA now moving forward with this, firms should:
  • Assess relevant risk factors
  • Document decisions and their rationale
  • Adjust review frequencies when new data suggests a change in risk
 
As always, keep in mind the old compliance saying: “If it’s not written down, it didn’t happen.” Clear and thorough documentation remains essential.
 
 
ICOBS disclosures – no relaxation
The FCA decided not to change ICOBS disclosure responsibility rules.
 
In practice, this means:
 
  • Existing disclosure responsibilities remain unchanged
  • Lead firm arrangements do not shift disclosure accountability
 
 
Employers’ Liability (EL) reporting removed
The FCA has brought in minor changes here. You will no longer need to:
 
  • Notify the FCA you are conducting EL business
  • Submit annual EL audit reports or directors’ certificates
  •  
Overall, we anticipate the impact of this change being minimal, namely, some paperwork relief only. EL traceability and record-keeping obligations remain.
 
 
Training & Competence – 15-hour CPD rule removed
This one surprised us the most! And, of the proposals contained in the Consultation paper, the FCA’s proposal to remove the prescribed 15-hour annual CPD minimum generated the most feedback during the recent consultation, and for good reason.The FCA has shifted focus from quantity to quality arguing that the fixed hourly requirement had become a tick-box exercise, rather than a meaningful way to ensure competence. 
 
Don’t throw the training portals out of the window just yet though! CPD still remains mandatory, just without a set number of hours. Instead, it’s now up to you to determine what’s appropriate for your staff, based on roles and responsibilities.
 
What this means for brokers:
 
  • This isn’t a softening of standards, you are still required to meet Training and Competency standards
  • The focus has shifted from how much training is done to how relevant and effective it is. The modified private motor insurance salesperson will no longer have to select something random such as “hot air balloon liability insurance” just to add another 30 minutes to their CPD log!
  • CPD should be role-specific, meaningful, and measurable in terms of outcomes
  • Competence monitoring, supervision and record keeping are still required but the pressure of tracking fixed hours is gone

This change gives you greater flexibility to tailor development to the real needs of their teams, rather than chasing time-based targets. 

REMEMBER
While hours-based CPD frameworks are obsolete, the training and competency and senior management arrangements requirements remain, now the FCA will judge competence by outcomes, QA, complaints, and errors, not attendance logs.
 
What’s Next?
The FCA’s not stopping with PS25/21 and has outlined further areas of possible change:
 
  • They are looking to make further rule simplifications with the aim of reducing unnecessary regulation while preserving customer protection. In addition to proposed changes in the PPI and packaged bank account space, the regulator will be undertaking broader engagement to identify further simplification opportunities.
  • The FCA is exploring disapplying ICOBS, PROD and Consumer Duty for non-UK business, a move which has industry support to avoid regulatory duplication and reduce high costs. We can expect the consultation on this in Q2 this year alongside proposals to amend the scope of ICOBS and PROD.
  • Following strong support for using “habitual residence” and “state of the risk” to determine rule applicability, the FCA has confirmed these criteria are likely to guide future scope adjustments when defining non-UK business.
  • There will be a review of volume and format of required disclosures with the possibility of greater flexibility being introduced
  • There is the potential for change on customer classification to achieve further alignment and simplification following the DISP scope update
  • And finally, the FCA are to review the 2026 pricing data submission with further streamlining possible in 2027…….watch this space!
 
As always, we’re here to help if you have any questions.
 
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