
Insurance regulation: 2024 in review and a flavour of 2025
In this article we set out an overview of some key regulatory developments in 2024, and a few notes on what is expected in 2025.
Post-Brexit
There has been no further movement on cooperation between the UK and EU on financial services regulation post-Brexit, although indications from the Labour government are that it would like to have a closer relationship with the EU, and it has indicated it will engage with the financial services sector in relation to this1. We have seen the Berne Financial Services Agreement between the UK and Switzerland allowing for mutual recognition in financial services and cross-border insurance provision, which will enter into force once ratified by both sides, likely not before 2026.
Competitiveness Objective
The Financial Services and Markets Act 2023 introduced changes, including the secondary competitiveness and growth objective (SCGO) for the PRA and FCA. The House of Lords Financial Services Regulation Committee has been conducting an Inquiry into these objectives, considering whether the resources and culture of the regulators facilitate the implementation of the SCGO and whether the UK regulatory landscape is attractive to investors. The SCGO is an area of focus, as the government looks to the financial services sector in connection with its economic growth plans. A number of developments below have taken place against this background.
Solvency UK
Full implementation of the reforms to Solvency II to create the new Solvency UK regime was completed by 31 December 2024. These changes aim to streamline regulatory requirements and introduce more flexibility to the market, with the hope of unlocking capital for investment in areas such as infrastructure and encouraging innovation and investment in green projects.
Consumer Duty
The Consumer Duty, a core part of the FCA’s strategy, is now fully in force across all retail financial services2. The FCA is actively checking that firms are embedding the Duty and delivering good outcomes. The FCA released several publications in 2024 setting out its work on the Duty’s implementation and has found areas where firms could do better. In December 2023 it set out its priority areas for 2024/25 including a focus on price and value outcomes, as well as looking at claims handling arrangements.Â
Product Oversight and Governance
The FCA has been reviewing firms’ compliance with product governance obligations3. The FCA published its General Insurance and Pure Protection Product Governance Thematic Review (TR24/2) in August 2024, finding that firms are not doing enough to comply with the rules. As a result, it is considering appropriate actions to address the issues.
Appointed Representatives
The FCA published a review on how principals are adhering to the increased expectations for appointed representatives (“ARs”) which were introduced in 2022. The review found that increased compliance is required, and the FCA is considering appropriate actions to address the issues. The review also highlighted challenges for principals in overseeing and communicating with overseas appointed representatives due to differences in legal and other requirements. We also saw a Court of Appeal decision published in 2024 in KVB v Jacob Hopkins Mckenzie4 which clarified the extent to which a principal of an AR can limit its third party liability for activities conducted by an AR. We understand that this is being appealed to the Supreme Court.
Critical Third Parties and Operational Resilience
New rules for critical third parties (CTPs) (such as, for example, cloud service providers) took effect from 1 January 2025, allowing financial regulators to oversee the services provided by CTPs. Under the regime, HM Treasury may designate a third party that provides a “systemic third party service” as a CTP if a failure in or disruption of that service could threaten the stability of, or confidence in, the UK financial system. The CTP will then be required to comply with six fundamental rules and requirements relating to operational risk and resilience, information, reporting, and testing requirement.
Reporting operational incidents and material third party arrangements
The PRA and FCA published joint consultations on 13 December 2024 on reporting operational incidents and material third party arrangements. The aim is to standardise the definition of an operational incident and reporting. Notification requirements are to be introduced for material third party arrangements that do not comprise outsourcing. The regulators aim to improve knowledge and understanding of risks in the area, and this will support their recommendation of potential CTPs to HM Treasury. The FCA consultation closes on 13 March 2025, and the PRA consultation on 14 March 2025.
FCA Discussion Paper on the Regulation of Commercial and Bespoke Insurance Business
The FCA consulted on a number of proposed rule changes aimed at striking a more appropriate balance between protecting consumers and facilitating competitiveness in the commercial non-investment general insurance market. The proposals include: amending inconsistency in the definition of “contracts of large risks”; amending rules on regulatory compliance by co-manufacturers; and a “bespoke product exclusion” pursuant to which certain bespoke or tailored products will fall outside the scope of rule on manufacturing in PROD 4.2. The consultation closed on 10 January 2025 and the outcome is awaited.
Captives
In November, the UK government published a consultation on reforming the UK captive regime, exploring necessary regulatory changes to make the UK a more attractive location for captives5. The consultation considers lowering capital requirements, reducing fees, and expediting the authorisation process. The consultation closes on 7 February.
Innovation and Tech
In May 2024, the FCA and PRA published an update on their approach to AI, emphasising a principles-based regulatory framework, aiming to balance innovation with the need to manage risks associated with AI technologies. This was in line with the approach of the previous government which set out a principles-based light-touch approach to regulation of AI6. The change in Government heralded something of a potential change of approach, with an indication of a move to a stronger approach, at least towards the most powerful AI. The Regulatory Innovation Office has also been set up to work with existing regulatory bodies. This is in contrast to the position in the EU, which is more prescriptive, with the EU AI Act which came into force in August 2024.
Climate
The FCA anti-greenwashing rule came into force on 31 May 2024, obliging firms to ensure any sustainability-related claims about a product or service are consistent with its actual sustainability characteristics. In its January 2025 letter setting out its insurance supervision priorities, the PRA indicated that firms are yet to embed fully the PRA’s expectations on climate, with further progress needed on scenario analysis and risk management. The PRA will consult on an update on its Supervisory Statement on the approach to managing financial risks from climate change (SS3/19) in 2025.
Diversity and Inclusion
At the end of 2023, the FCA and PRA closed a joint consultation on diversity and inclusion in the financial sector, including proposals for requirements around diversity policies, targets, reporting and publication, and addressing the regulation of non-financial misconduct.
The FCA has indicated that it anticipates setting out its position on non-financial misconduct early in 2025. This follows the outcome of the Treasury Committee inquiry into “Sexism in the City” and a survey indicating an increase in non-financial misconduct incidents in the last three years. It is not yet clear how the FCA will take forward the other proposals.
FCA Publication of Investigations
The FCA faced opposition to its proposals, published in February 2024, to publish details of its investigations into firms, including at a Parliamentary Inquiry established in respect of the proposals. As a result, the FCA published a second consultation in November scaling them back in some respects. This includes making clear that in determining whether publication is in the public interest the FCA will include an assessment of the effect of publication on the firm itself, and giving a longer period to firms to make representations on draft announcements. This second consultation closes on 17 February 2025.
Looking to next year
We have already identified a number of areas above where we might expect to see the outcomes of consultations, new regulation or legislation come into effect, or further work by the PRA or FCA. In addition, in the Mansion House speech in November, the Chancellor indicated that the Treasury, FCA and PRA would shortly publish the outcomes of their review of the Senior Managers and Certification Regime and will consult on removing the current certification regime from legislation.
Footnotes
- In its call for evidence on its Financial Services Growth and Competitiveness Strategy
- It came into force in July 2023 for open products and in July 2024 for closed products
- Contained in Chapter 4 of the Product Intervention and Product Governance Sourcebook part of the FCA Handbook
- [2024] EWCA Civ 765
- Our recent article on the captives regime is here
- See White Paper