Simplifying the insurance rules – FCA’s policy statement PS25/21

• The previous definition of “contracts of large risk” required firms to apply the same rules to some quite sophisticated commercial customers as they would to consumers, which can be disproportionate.
• The new rules are slightly different to the initial consultation, with the FCA splitting the definition in two:
  
  • Specialist risks contracts: This new definition aligns with the product-specific categories in the previous “contracts of large risk” definition, for example including railway rolling stock, aircraft, ships, goods in transit, aircraft liability, liability of ships and contracts of insurance covering credit and suretyship where the policyholder is engaged in certain specified activities.
  • Larger commercial customers: This definition now aligns with the rules in DISP on whether commercial customers are eligible to make a complaint to FOS. Where there is more than one policyholder, the new threshold applies only to the main policyholder.
• This will be welcome for firms, in particular being able to align the protections they afford to customers, rather than having to apply different thresholds for complaints to ICOBS and the Consumer Duty.  
• Firms that wish to utilise the benefits of the new definition of “Larger commercial customers” will need to need to consider how they capture and record the evidence of the customer complying with the new definition (described in the policy statement as the “SME watershed” information). In particular, this is because firms will have previously been considering this under DISP when the customer classification is considered at the time the customer complains (rather than when they enter into the contract of insurance).

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• Another welcome change will be the option to appoint a single lead firm to be solely responsible for complying with the insurance manufacturer’s obligations under the Product Intervention and Product Governance Sourcebook (PROD 4).
• The FCA has implemented this as consulted on, only allowing insurers or Lloyds managing agents to be lead manufacturers.
• Disappointingly for some, the FCA is not allowing intermediaries to be a lead manufacturer. This will be particularly disappointing for those that are or work with MGAs who, in practice, have a lead role in the product design and operation. The FCA has cited concern if an insurer is not responsible for the fair value of the product. We expect the industry to continue to lobby the regulator on this point, with the FCA providing some hope that it might revisit it in the future if certain risks it has identified in thematic reviews of the market have been addressed.
• Firms should also consider the FCA’s guidance on collecting and collating data where one party is appointed to do this (the new PROD 4.2.13B G).
• Whilst the FCA considered introducing new amendments meaning only the lead manufacturer should be responsible for producing the ICOBS disclosure documents, it has decided not to make any amendments to the ICOBS disclosure rules.

• As expected, the FCA has broadly implemented the rules it consulted on, with only minor amendments.
• The aim is to bring more clarity to the regime to allow more firms to take advantage of it.
• The FCA has provided guidance on when contracts will be bespoke which confirms that they are contracts that are created specifically for a customer in response to their request to meet the customer’s particular needs that are not marketed to other customers. This would not prevent a firm marketing that it has specialist expertise to provide bespoke contracts for particular fields.

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• The FCA has removed the minimum review frequency for PROD 4 reviews of non-investment insurance products.
• Instead, manufacturers will need to analyse what frequency of review is appropriate for the product based on the product’s risk factors and potential for customer harm.
• Broadly similar requirements will apply to distributors in relation to the review of the product distribution arrangements. This means that the review of distribution arrangements and review of the product may not align. Insurers and intermediaries should work together to ensure both firms are able to comply with their requirements.
• The FCA has also introduced new guidance on sharing data between insurers and intermediaries for reviews where there is a lead firm.

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• The FCA is removing the 15-hour requirement and associated record keeping requirements for insurance and funeral plans distribution.
• Firms must continue to make sure employees undertake appropriate ongoing training but will be required to make their own assessment of whether the training they provide is of sufficient quality and suitable.

• GAP insurance: The FCA will decide in 2026 whether to make changes to the product specific rules for GAP insurance.
• Non-UK customers: The FCA has separately confirmed that it is consulting on removing business for non-UK customers from the scope of the Duty in Q2 2026. The FCA will look in parallel at the application of ICOBS and PROD for non-UK business.
• Disclosure requirements: Whilst the FCA is consulting on changes to disclosure rules for payment protection insurance and PBAs in CP25/37, it will separately consider introducing more flexibility for insurance disclosures. The opportunity to simplify customer journeys would be a welcome development.
• Customer classification: The FCA recognises even after the changes in this Policy Statement, there are still significant complexities in its rules on customer classifications and so will consider whether it can simplify them or provide more guidance.
• Reporting: The FCA has recognised the data burdens and specifically called out the pricing data firms submit. However, the FCA is not changing this before March 2026 but might consider changes for the 2027 reporting period.