Year in Review: Summary of UK Insurance Regulatory Developments in 2025

One of the key themes in relation to insurance regulation over the past year is the focus on the financial sector as a crucial element in propelling UK economic growth.

In July, the Chancellor announced the “Leeds reforms”. These reforms included the launch of the government’s Financial Services Growth and Competitiveness Strategy, which aims to create a competitive regulatory environment by ensuring that regulation is proportionate to large risks, amongst other things. The government wants a shift to allowing informed risk taking, cutting unnecessary red tape, and encouraging international investment. Reforms that were announced included: reviewing the Consumer Duty to provide more certainty on its scope and application to wholesale firms; amending the Senior Managers & Certification Regime (SM&CR); taking forward a much-welcomed new captive insurance framework to encourage more captive insurers to establish in the jurisdiction¹, and making substantial changes to the Financial Ombudsman Service regime² to address its perceived drift towards being a quasi-regulator rather than an easy dispute resolution service. 

Steps are also being taken to encourage international collaboration and investment. For example, the Berne Financial Services agreement with Switzerland allowing for cross-border activities, including insurance, on the basis of mutual recognition, became effective from 1 January 2026. The FCA has also announced that it is establishing a presence in Washington and Australia in order to assist US and Asia-Pacific-based firms with navigating UK regulation.

In addition to the initiatives set out above, the PRA and the FCA are themselves undertaking work towards meeting their Secondary International Competitiveness and Growth Objective (SCGO) introduced a few years ago. Both published reports this year on progress, as well as giving a number of speeches addressing the topic. The FCA has published a Policy Statement on simplifying various rules applying to the commercial insurance market. The PRA has published a Policy Statement on the Matching Adjustment Investment Accelerator, allowing insurers to capitalise more quickly on investment opportunities. It has also consulted on further streamlining the policy framework and increasing the subsidiarisation thresholds for insurance third country branches. Both the PRA and FCA have agreed changes with Lloyd’s to streamline the process of regulatory approval for Lloyd’s managing agents.

The industry has unsurprisingly been very welcoming of the drive to lower regulatory frictions and encourage growth in the sector. However, there are counterpoint views to the government’s plans, as the regulators themselves recognise. There have been criticisms³ that the government and regulators have not truly understood the aim of financial services growth as a driver of growth in the real economy, or exactly how that will be achieved. Cautions have been voiced that rules should not stripped back to the extent that consumers are harmed⁴. In this regard, a super-complaint to the FCA was issued this year in relation to retail home and travel insurance, indicating strongly the view that the FCA is not doing enough to protect consumers. The FCA is aware that work needs to be done in this area and in December published its response. The FCA highlights its existing work including carrying out analysis and review in relation to areas including motor claims, home and travel claims, and premium finance⁵. The FCA is also continuing to work on its flagship Consumer Duty. Its work includes not only assessing and streamlining how it applies to wholesale firms (as flagged above) and streamlining the approach, but assessing how the Duty has been implemented. For example, this year it published details of its review into the consumer support outcome and treatment of customers in vulnerable circumstances⁶ under the Duty. As a result of the super-complaint the FCA has said it will expand its work, e.g. to improve claims handling by reviewing customer service and delivery, and oversight of third-party claims handlers. The FCA will also look to improve consumer understanding by analysing how firms’ sales processes affect outcomes. The FCA will also continue work around the Consumer Duty in 2026, including consulting on removing businesses with non-UK customers from the scope of the duty.

Sustainability

On the sustainability front, the PRA published a Policy Statement (PS25/25) updating its supervisory expectations for banks and insurers in relation to climate-related risks that were contained in SS3/19. The PRA notes in this Policy Statement that, although progress has been made on climate-related risk management, more is needed and progress is uneven.

Understanding, and effective management, of climate-related risks continues to evolve, and the PRA’s position remains that the policy should be implemented proportionately by firms in line with the materiality of their exposure, allowing them to tailor their actions and solutions to their business operations without undue burden. Some of the changes include: that there be more board-level engagement on climate-related risks, and determination of how strategy relates to climate and transition. In addition, climate-specific risk appetite statements should be agreed for material risks. The PRA has clarified that the existing Solvency Capital Requirement (SCR) Rules provide sufficient flexibility for an insurer to take account of climate-related risks in the way it considers appropriate. It proposes in addition that Own Risk Solvency Assessments (ORSAs) should include climate scenarios when climate-related risks are material, to help further assess climate-related risks.

Conduct

After some delay, the FCA progressed its non-financial misconduct proposals, publishing Policy Statement PS25/23 in December 2025. Amendments have been made to the scope of the Code of Conduct (COCON) so that it will apply in the same way in non-banks as in banks, to come into force on 1 September 2026. The FCA has also revised the definition of misconduct in COCON to reflect more closely the definition of harassment under the Equality Act 2010. 

At the same time, there is new Handbook guidance on COCON and the Fit and Proper (FIT) section of the Handbook. The aim is to make it easier for firms to apply the rules consistently in circumstances where it can be tricky to determine whether non-financial misconduct has become a regulatory matter. In accordance with its goal to act proportionately, the FCA has dropped earlier proposals to collect wider diversity data.

Finally, another important development this year was the FCA’s decision to drop its proposals to widen the circumstances in which it could publish details of an enforcement investigation, including the name of the firm. The FCA had proposed that it move from publication in “exceptional circumstances” to a “public interest” test, but a huge amount of criticism led it to row back. Instead, the FCA limited itself to publishing such information in limited additional circumstances: where it is investigating suspected unauthorised financial services, or if the subject of the investigation has itself made the investigation public, or on an anonymised basis where desirable for education or encouraging compliance with rules. Since that development, we saw an Administrative Court decision in R (on the application of Claims Protection Agency) v FCA, in which the court refused a judicial review application challenging an FCA decision to announce that the claimant was under investigation. This decision might mean that the FCA could be somewhat bolder about making announcements of investigations, within the ambit of the limited rule changes.

What to expect in 2026

We will see developments in relation to many of the issues discussed above, and there seems little doubt that the dominant focus on evolving regulation to drive growth and innovation will continue, but for the regulators there is an ongoing need to balance priorities.

The PRA has recently published its insurance supervisory priorities for 2026. In relation to general insurance the PRA flags matters including (once again) concerns about optimistic underwriting assumptions in internal models; oversight of delegated authority underwriting; and operational resilience – the PRA says that senior managers and boards should routinely consider how strategic changes such as new products and IT upgrades affect resilience. The PRA also flags that 2026 will mark the implementation of its policy on solvent exit for insurers, who must prepare a Solvent Exit Analysis by 30 June 2026.

The regulators’ priorities indicate that, for the first time in many years, there is not a sole “headline” topic such as the SM&CR, Brexit, or the Consumer Duty. We hope this will give the regulators greater freedom to undertake more “business as usual” topics and, hopefully, to support greater innovation in the market.

Footnotes:

1. See the HM Treasury Consultation Response, dated 15 July 2025, here. The PRA has indicated that it will consult on the new regime in the Summer of 2026 in time to launch in 2027.
2. HM Treasury Consultation published 15 July 2025 and FCA consultation CP25/22: Modernising the Redress System. The FOS itself in addition published a policy statement on interest.
3. For example from the House of Lords Financial Services Regulatory Committee.
4. The FCA itself noted this view of Meg Hillier Chair of the House of Commons Treasury Select Committee, published in the Financial Times on 17 February 2025.
5. Results of MS24/2 Premium Finance Market Study, Study update paper published July 2025.
6. FCA publication Firms’ treatment of customers in vulnerable circumstances – review published 7 March 2025 and Delivering good outcomes for customers in vulnerable circumstances – good practice and areas for improvement dated 7 March 2025.