UK Insurance Regulation: FCA Consults on Simplifying Various Insurance Requirements

The FCA published a consultation paper (CP25/12) on 14 May 2025 outlining its proposals to simplify various Handbook provisions relating to insurance firms and funeral plan providers (the “consultation”). 

This follows the FCA’s discussion paper (DP24/1) on regulating commercial and bespoke insurance business, which we covered in our July 2024 briefing, which can be accessed here. 

Against the backdrop of the FCA’s broader push for growth, this consultation proposes to remove certain prescriptive requirements from the Handbook to give firms greater flexibility in how they comply with the FCA’s rules. The consultation seeks to (i) clarify what constitutes commercial and non-commercial insurance, (ii) introduce the concept of a “lead manufacturer” role in co-manufacturing arrangements, and (iii) widen the scope of the bespoke contracts exclusion in respect of the PROD 4 rules.

Application of rules to the commercial insurance market

The Handbook currently distinguishes between SMEs and larger commercial customers through the concept of “contracts of large risks”.

The FCA proposes to replace the current definition of “contracts of large risks” with a new definition of “contracts of commercial or other risks” to identify larger commercial insurance customers who (in the FCA’s view) do not require the same regulatory protections as consumers and SMEs. 

The proposed definition would use thresholds and criteria already in the Handbook, but these would apply to a wider range of non-investment insurance contracts. The proposed definition would continue to cover specific large risks, such as ships, goods in transit, and aircraft.

Co-manufacturers of insurance products

The FCA proposes to give co-manufacturers the option to select a lead firm to be solely responsible for complying with the PROD 4 rules on product manufacture. The proposed conditions for the selection of a lead firm are that:

• the lead firm must be an insurer or a Lloyd’s managing agent (i.e. it cannot be an insurance intermediary);
• the lead firm must have significant involvement in the product’s manufacture; and
• all co-manufacturers (including the lead firm) must agree in writing to certain provisions (e.g. in respect of liability and information sharing).

Where firms are unable to, or choose not to, select a lead firm (e.g. where the product is designed primarily by a broker), the current rules would continue to apply, whereby all co-manufacturers are equally responsible for complying with PROD 4. The consultation also proposes to issue additional guidance on the current rules.

Bespoke contracts exclusion

Currently, insurance intermediaries producing “bespoke contracts” (i.e. one-off contracts made at a particular customer’s request) do not need to comply with the rules in PROD 4. The FCA proposes to broaden the bespoke contracts exclusion to include insurers. This would exclude all bespoke contracts (regardless of the type of firm that manufactures them) from the PROD 4 rules. The FCA also proposes to provide rules and guidance as to which contracts fall within the exclusion. By way of example, the FCA has clarified that adapting an existing product for a particular customer would not constitute a bespoke contract for these purposes.

Frequency of review

The FCA proposes to remove the existing requirement in PROD 4.2, pursuant to which firms must review their non-investment insurance products at least every 12 months. This would give firms the flexibility to determine the frequency of their reviews based on each product’s potential for customer harm. The FCA also proposes to make similar changes to the PROD 4.2 requirement for firms to review their product distribution arrangements in relation to non-investment insurance products at least every 12 months.

Employers’ liability insurance notification/reporting requirements

The FCA proposes to remove the employers’ liability notification and annual reporting requirements from the Handbook to ensure that the rules are proportionate and reflect the current employers’ liability market.

Training and competency requirements

The FCA proposes to remove from the Handbook the requirement for employees of insurance distributors to undertake at least 15 hours of continuing professional development each year, and the corresponding monitoring and record-keeping requirements. Insurance distributors will still be required to ensure that their employees have the skills, knowledge and experience necessary to carry out their roles.

Future changes

In addition, the consultation discusses potential rule changes that the FCA is considering. For instance, the FCA has indicated that it might seek to apply its conduct rules to insurance business outside of the UK.

Options not being proposed

The 2024 discussion paper considered various options to meet the regulator’s aims. Of the options considered, the following were excluded for the purposes of the consultation:

• the application of rules to the commercial insurance market:
  • to retain the current “contracts of large risk” definition;
  • to replace the “contracts of large risks” definition with the DISP eligible complainant definition (to align balance sheet, turnover, and employee numbers thresholds); and
  • to remove the product-specific rules (i.e. those which mean products such as aviation and marine insurance are always classed as large risks).
• co-manufacturers of insurance products:
  • to require responsibility to be designated to a pre-defined lead insurer to take sole responsibility for compliance; and
  • to allow co-manufacturers to determine which co-manufacturer is responsible for compliance on a case-by-case basis; and
• bespoke contracts; all of the options set out in DP24/1 were proposed.

Next steps

Comments on the consultation can be provided here until 2 July 2025. The FCA intends for firms to be able to take advantage of the flexibility that would be introduced by the proposed rules as soon as possible and, on this basis, the FCA has indicated that it intends for the rule changes to come into force immediately after it publishes the policy statement in response to this consultation. The FCA has recently indicated that it is aiming to publish the policy statement in Q4 2025.

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