Imagine a world where insurance rules aren't a tangled web of red tape—welcome to the FCA's bold move to simplify things! But is this simplification truly a game-changer for businesses, or does it leave some players out in the cold? Dive in as we unpack the key details of Policy Statement PS25/21, and discover how these changes could reshape the insurance landscape for insurers and intermediaries alike. Trust us, you won't want to miss the twists that might spark some heated debates.
Breaking Down the Insurance Rule Overhaul – FCA’s Policy Statement PS25/21
TLT is here to highlight the essential elements you absolutely need to know about...
The Financial Conduct Authority (FCA) has released its final Policy Statement PS25/21, outlining definitive rules and potential future adjustments aimed at streamlining insurance regulations. This initiative promises a more adaptable and balanced framework for the insurance industry, with the goal of cutting down on regulatory expenses. While the FCA has largely adopted the rules from its consultation with minimal major tweaks, it has also hinted at additional evolutions on the horizon.
Our Financial Services Regulation Partner, Andrzej Wieckowski, shares his perspective...
“Even though parts of the market were hoping for even bolder reforms, this shift toward a more flexible and fair approach is great news for companies, especially those serving business clients. Now, the focus should be on fully embracing and optimizing these updates.”
Ben Player, another of our Financial Services Regulation Partners, zooms in on the implications for insurance intermediaries...
“Although at first glance, several rule updates seem geared toward insurers, intermediaries stand to gain multiple advantages from the new framework—provided they collaborate closely with insurers to capitalize on them. Since these rules took effect right away upon the Policy Statement's release, there's no delay; it's time to dive into reviewing them and implementing the necessary adaptations without hesitation.”
The Crucial Aspects You Can't Afford to Overlook...
Tailoring Rules for Business Clients
- Previously, the term “contracts of large risk” lumped sophisticated commercial clients together with everyday consumers under identical regulations, which often felt unfair and excessive.
- The updated rules diverge slightly from the original proposals, dividing the definition into two clear parts:
** Specialist Risks Contracts: This category now matches the specific product types from the old “contracts of large risk” concept, such as insurance for railway vehicles, airplanes, vessels, goods during transport, aircraft liability, vessel liability, and policies involving credit or suretyship where the insured party is involved in designated activities.
** Larger Commercial Clients: This aligns with the guidelines in DISP for determining if business clients can file complaints with the Financial Ombudsman Service (FOS). For policies with multiple holders, the new criteria apply solely to the primary policyholder.
- This refinement is a relief for firms, enabling them to standardize protections across customers without juggling conflicting standards for FOS complaints under ICOBS and the Consumer Duty.
- To fully benefit from the “Larger Commercial Customers” redefinition, businesses must think carefully about gathering and documenting proof that clients meet the new criteria—often referred to in the statement as the “SME watershed” details. This is especially important since, in the past, such classification was evaluated only when a complaint arose (via DISP), not at the contract's outset.
But here's where it gets controversial... The FCA's stance on co-manufacturers might ruffle some feathers. Let's explore why.
Co-Manufacturers
- A positive development is the ability to designate a single lead entity to handle all insurance producer responsibilities under the Product Intervention and Product Governance Sourcebook (PROD 4).
- As proposed, this option is restricted to insurers or Lloyd's managing agents serving as lead producers.
- This restriction disappoints many, as intermediaries can't take the lead role—particularly those partnered with Managing General Agents (MGAs), who often drive product creation and management in practice. The FCA worries that without an insurer ensuring product fairness, risks could escalate. Industry voices are rallying for change, and the FCA suggests they might revisit this if future market reviews show risks have been mitigated.
- Companies should also heed the FCA's advice on data collection when one party takes charge (see the new PROD 4.2.13B G at https://handbook.fca.org.uk/handbook/prod4/prod4s2?timeline=true).
- Although the FCA mulled over shifting ICOBS disclosure responsibilities solely to the lead producer, it ultimately kept the existing rules unchanged.
And this is the part most people miss—the subtle shifts in bespoke contracts could open doors for innovation, but only if firms navigate them wisely.
Custom-Tailored Insurance Agreements
- As anticipated, the FCA has rolled out the consulted rules with just minor modifications.
- The objective is to clarify the system, making it easier for more organizations to participate.
- Guidance from the FCA spells out that bespoke contracts are those crafted uniquely for a client based on their specific needs, not offered to others. However, firms can still advertise their specialized skills in creating such personalized policies for niche areas without violating the spirit of the rules.
Annual PROD 4 Assessments
- The FCA has eliminated the mandatory yearly check for PROD 4 evaluations on non-investment insurance products.
- Instead, creators must assess and decide on a suitable review schedule based on the product's risk profile and potential for client detriment.
- Distributors face comparable obligations for examining their product distribution setups. This might mean that product and distribution reviews don't sync up, so insurers and intermediaries need to coordinate to ensure everyone meets their duties.
- New FCA guidance also addresses data exchange between insurers and intermediaries for assessments involving a lead entity.
Ditching the Yearly 15-Hour Continuing Professional Development Mandate
- The FCA is phasing out the 15-hour annual requirement and related documentation for those distributing insurance and funeral plans.
- Firms still bear the responsibility of providing ongoing education to staff, but they'll now evaluate internally whether the training is adequate in quality and relevance. This empowers companies to customize learning to their team's needs—perhaps incorporating more practical simulations or industry-specific workshops to enhance real-world readiness.
Upcoming Reforms on the Horizon
- GAP Insurance: By 2026, the FCA will evaluate if product-specific rules for Guaranteed Asset Protection (GAP) insurance need adjustments.
- Non-UK Clients: Separately, the FCA has announced a consultation in Q2 2026 to exclude non-UK business from the Consumer Duty (details at https://www.fca.org.uk/firms/consumer-duty/requirements-review-update). They'll also examine how ICOBS and PROD apply to overseas operations.
- Disclosure Obligations: While consulting on tweaks to disclosure for payment protection insurance and packaged bank accounts in CP25/37 (https://www.fca.org.uk/publication/consultation/cp25-37.pdf), the FCA plans to explore broader simplifications for insurance disclosures. Streamlining customer experiences could be a boon, reducing confusion in digital journeys.
- Client Categorization: Acknowledging ongoing complexities in classification rules post this statement, the FCA may seek to streamline them further or offer clearer guidance.
- Reporting: Recognizing the strain of data demands, especially pricing submissions, the FCA won't alter this before March 2026 but might consider updates for 2027 reporting cycles. This could mean less burdensome processes, allowing firms to focus more on innovation rather than paperwork.
Quick Summary...
Publication Link: Simplifying the Insurance Rules (https://www.fca.org.uk/publication/policy/ps25-21.pdf)
Published Date: 9 December 2025
Publisher: Financial Conduct Authority
Type: Policy Statement
Important Dates: 9 December 2025 – Rules took immediate effect
Relevance: Insurers, Insurance Intermediaries
Authors: Andrzej Wieckowski, Ben Player, Daniel Meyer, Nikesh Shah
This article offers general insights based on our understanding of the law and practices as of December 2025. For tailored advice, consult a specialist. See our terms & conditions for more details.
What do you think about these changes? Is the FCA striking the right balance between simplification and oversight, or could they go further—especially on letting intermediaries lead co-manufacturing? Do you agree that removing the CPD hours empowers firms, or does it risk uneven training standards? Share your views in the comments below—we'd love to hear differing opinions and spark a discussion!
