FCA Simplifies Insurance Rules

The FCA published a Policy Statement (PS25/21) on 9 December 2025 outlining finalised measures to simplify various regulations for insurance firms, which include clarifying the scope of Handbook rules for commercial insurance, allowing a “lead firm” to undertake sole responsibility for compliance in co-manufacturing arrangements, and broadening the scope of the bespoke contracts exclusion in respect of the product governance rules.

The aim of the changes is to support growth by reducing regulatory requirements and processes, including more balance, flexibility and proportionality, whilst maintaining appropriate consumer protection. This development will be welcomed by the insurance industry in general, and in particular, the Managing General Agents’ Association has said that, although the changes do not go as far as the MGA market may have liked, they are a significant step towards modernising regulation, with the door not closed to future changes.

The new rules came into effect immediately upon the Policy Statement’s publication. They build on proposals that were put forward in the FCA’s Consultation Paper (CP25/12), which are covered in our June 2025 briefing here.

Set out below is a summary of the rule changes introduced by the Policy Statement, followed by the next steps.

Rules which apply to commercial insurance – the “SME Watershed”

Previous position:

The FCA previously distinguished between SMEs and larger commercial customers through the concept of “contracts of large risks”, which were excluded from the FCA’s rules in ICOBS and PROD and from the Consumer Duty.

New position:

The policy statement has split the concept of “large risks” into two new definitions (both of which are excluded from the ICOBS and PROD rules and the Consumer Duty):

“specialist risks contracts“: contracts of insurance covering specific categories for example, aircraft, ships, and goods in transit; and

“larger commercial customers“: commercial customers of any general insurance product which exceed balance sheet, turnover, and employee number thresholds set out in the FCA’s DISP rules.

The FCA hopes that these new definitions will offer a clearer divide between contracts excluded from the conduct rules based on the nature of the risk that they cover, and customers excluded based on the above thresholds.

The Policy Statement further clarifies that, where there is more than one policyholder, the thresholds apply only to the “main insured“, which is defined as the party making “arrangements preparatory to the conclusion of the contract“, This is consistent with the approach to other ICOBS rules, which are limited in a similar way. Firms are also reminded that where a product has, or could have, retail consumers who are policyholders or stakeholders (such as residential leaseholders), ICOBS and PROD rules will protect those customers in the same way.

Co-Manufacturer Arrangements

Previous position:

Where an insurance product had multiple manufacturers, each co-manufacturer was equally responsible for meeting each of the PROD 4 rules.

New position:

The Policy Statement grants co-manufacturers the option to appoint a lead firm to be solely responsible for complying with the PROD 4 rules on product manufacture, provided that the firm meets relevant conditions. Where no lead firm is appointed, the current requirements remain largely unchanged, such that all co-manufacturers will remain equally responsible for meeting PROD 4 requirements.

The FCA is not going ahead with the proposal that, where a lead is appointed, only the lead should be responsible for producing the ICOBS disclosure documents. 

The Policy Statement does not go as far as permitting intermediaries such as MGAs to assume the lead firm role, despite feedback on Consultation Paper CP25/12 supporting this approach. The FCA has concluded that, where intermediaries develop and design products, it is more likely that fair value and good outcomes cannot be demonstrated, and there are concerns about insurers no longer being responsible. However, the FCA notes that it may revisit this in the future if it becomes clear that risks identified in its previous thematic work have been addressed. Further, the FCA has published a separate “Statement on firms working together to manufacture products or services” which it says is intended to give further clarity on supervisory expectations and give firms confidence to apply them in a proportionate way. 

Bespoke contract exclusion

Previous position:

Insurance intermediaries that produce “bespoke contracts” (i.e. one-off contracts tailored to a particular customer’s request) are not required to comply with the PROD 4 rules.

New position:

The policy statement broadens the bespoke contracts exclusion so that it includes insurers as well, meaning that all bespoke non-investment insurance contracts are now excluded from the PROD 4 rules.

The Policy Statement clarifies that advertising a general appetite or expertise for certain classes of business – such as, for example, a wide range of adventurous sport activities – would not amount to marketing a bespoke product. Further, the FCA is amending the application provisions under the Consumer Duty products and services, and price and value outcomes to make it clear that the product governance obligations for these outcomes do not apply to bespoke non-investment insurance contracts that are exempt from PROD 4

Removal of various other requirements

In addition to the above changes, the Policy Statement has removed each of the following requirements:

1. That firms must review their non-investment insurance products at least every 12 months. Instead, manufacturers will be required to determine review frequency based on a product’s risk factors and potential for customer harm. Similar requirements are being introduced for distributors in relation to the review of the product distribution arrangements, and manufacturers are expected to share information on appropriate product review intervals with distributors in the chain.
2. That firms must notify the FCA if they are conducting Employers’ Liability business, and submit annual independent audit reports and directors’ certificates (although firms must still obtain these annually); and
3. That employees of authorised firms must undertake a minimum of 15 hours continuing professional development every 12‑month period. The change is not intended as a relaxation of overall competence and training expectation. Firms will still need to monitor the knowledge and competence of employees but will now have flexibility to tailor training needs to specific roles.

Next steps

The Policy Statement confirms that the FCA will continue engaging with stakeholders to ensure that its rules achieve an appropriate balance between consumer protection and supporting innovation and growth. Key areas of further work include:

• assessing data reporting requirements in Q1 2026, including general insurance pricing returns, and considering further changes to reduce reporting burdens;
• considering whether to make changes to the Guaranteed Asset Protection (GAP) rules in 2026;
• consulting on disapplying the Consumer Duty to non-UK business by the end of Q2 2026, alongside reviewing the international scope of ICOBS and PROD rules;
• reviewing core definitions such as “customer” and “policyholder” to promote consistency and clarity; and
• reviewing disclosure requirements – the FCA is consulting on changes to disclosure rules for PPI and PBAs in CP25/37.

Michael Popp, Trainee Solicitor, assisted in the drafting of this briefing.