Proposals to get rid of the “outdated or duplicated” rules around insurance policy, and introduce “simpler and more straightforward rules” have been published by the UK FCA).

In a press release, the regulator has said the new proposals could reduce costs for businesses and consumers, provide wider access and, at the same time, ensure appropriate protection against financial risk.

One of the key proposals is to create a new category for large commercial insurance customers so that they are not captured by the FCA’s current conduct rules. “This would ease the burden on firms insuring larger businesses that can manage risks independently, while protecting smaller commercial customers,” the press release adds.

Matt Brewis, director of insurance at the FCA, said: “We are stripping back our insurance rulebook by removing ineffective, outdated or duplicated regulation, as part of our drive to become a smarter regulator and support growth.”

Experts believe the decision to re-examine its regulatory approach to commercial non-investment insurance is also aimed at improving international competitiveness and customer outcomes.

Loka Venkatramana, Senior Consultant at Pathlight Associates, told GRIP: “A key area of focus is the definition of ‘large risk.’ The FCA aims to sharpen this definition to better distinguish it from SMEs, ensure consistency across its rules, and enable proportionate consumer protections where they are most needed.”

What’s changing?

Most of the proposals put forward by the FCA are aimed at giving insurance firms more flexibility and freedom. These include:

• “No longer requiring firms to review the value of their product at least every 12 months. Instead, firms would use the risks and characteristics of each product to decide how often they review them.
• “Giving firms flexibility to appoint one lead insurer to comply with its rules in instances where more than one party is involved in designing the insurance product.
• “Broadening the scope of bespoke contract exclusions and making them easier for all insurers and brokers to use. Bespoke contracts are built to suit one customer upon that customer’s request, which means they automatically have the protections product governance rules provide.
• “Getting rid of duplicative annual reporting and employer’s liability notification requirements.
• “Removing the specified minimum hours of training and development required for insurance and funeral plan employees.”

Reactions

Bosses in the UK’s commercial insurance sector, which takes in annual premiums of around £95 billion ($126 billion), have long been calling for change to current rules which expose them to hefty compliance requirements, according to the FT.

The sector has welcomed proposals to create a new category for large commercial insurance customers, a move they believe will protect them from certain current rules.

Caroline Wagstaff, chief executive of the London Market Group, told the FT, “If applied consistently across the rule book, it will allow the regulator to focus on protecting the retail and SME consumers who really need it, while reducing unnecessary regulatory requirements for corporate clients.”

But critics argue that the FCA is continuously giving in to political pressure from a government which is desperately trying to reinvigorate a sluggish economy, a move which could prove risky down the line.

Sir John Vickers, former chair of a commission on the UK banking sector, was quoted by the FT in March saying: “The apparent politicization of some of these areas is troubling. I fear that injecting politics back into all these issues could be very bad for investment incentives.” 

Other independent experts believe the ultimate impact of these proposals is uncertain, and effective implementation could be a challenge since “the insurance sector faces ongoing regulatory change and limited access to consistent data.”

According to Venkatramana: “The FCA’s delivery on its strategic aims, especially improving market confidence and reducing harm, will depend on clear rules, proportionate oversight, and meaningful engagement with industry.”