FCA Regulatory Priorities: What do they mean for insurance firms?

The report outlines the four priorities and the FCA’s planned work around them.

Improving consumer understanding, claims handling and service quality

The priority is linked to the Which? super complaint and the FCA’s continuing investigations into home and travel claims handling. The FCA referred to work done to tackle underpayment of motor total loss claims, reduce costs for GAP insurance and reduce price walking practices.

The FCA will:

• analyse how different sales processes affect consumer outcomes
• review how home and travel insurance firms are improving customer understanding
• consider how claims outcomes are captured by the value measures rules
• consult on how the Digital Markets, Competition and Consumers Act 2024 is reflected in its Handbook
• review the oversight of outsourced claims processes
• resume work on retail insurance services to assess customer outcomes.

Increasing access to insurance

The priority relates to the FCA’s work with the Government on its Financial Inclusion Strategy and Motor Insurance Taskforce. The FCA talked about the reduction in monthly insurance payments for premium finance. The interim report on the FCA’s pure protection market study found a ‘protection gap’ which needs to be addressed. As part of this priority, the FCA wants to tackle uninsured driving, fraud and crime.

The FCA will:

• monitor Annual Percentage Rates (APRs) in premium finance
• conclude its pure protection market study and look for ways to reduce the protection gap
• work to increase home contents insurance uptake for social renters and on travel insurance underwriting decisions for those with pre-existing conditions
• work with the Government on insurance use cases for smart data
• work with the Association for British Insurers (ABI) and firms to improve efficiency and control costs in claims handling
• call for social media companies to do more to block fraudulent content.

Supporting growth and innovation

The FCA encourages firms to test ideas in its AI Lab and look at its Innovation Pathways.

The FCA will:

• carry out an AI review to evaluate the risks and opportunities of AI in insurance
• review cyber insurance coverage and risks, opportunities and barriers to adoption
• consult (with the Prudential Regulation Authority (PRA)) on a new regulatory framework for captive insurance
• engage with the industry on the future of insurance products and how it can help reduce barriers.

Simplifying regulation

The priority follows the FCA’s decision to simplify the insurance rules. The Consumer Duty is still integral. The FCA referred to its 2024 publication on non-financial misconduct that firms can use to benchmark processes, procedures and controls.

The FCA will:

• further simplify insurance rules and reporting requirements
• monitor pet and travel insurance for potential action 
• work with the Treasury and the PRA to review Senior Manager & Certification Regime (SM&CR).

Other areas of focus

The FCA will also focus on product reviews for life insurers, considering customer outcomes from closed book products and Child Trust Funds. The FCA will review the rules for funeral plans and review financial crime systems and controls across a sample of larger retail, wholesale and life insurers.

There are new rules to be introduced (with the PRA) for reporting operational incidents and information on material third parties.