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In May 2025, the FCA published . This sets out proposals aimed at reducing the compliance burden on insurers and creating more opportunities for growth, particularly in the UK’s commercial insurance sector.

These proposals are part of the broader initiative to boost UK growth and competitiveness (see ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in the UK’s article here), in line with the FCA’s secondary international competitiveness and growth objective, and were a key action identified by the FCA in its review of requirements (). The government’s ask for FS regulators to “regulate for growth not riskâ€� has challenged the FCA to consider the differing protection needs of commercial and retail consumers and eliminate overlapping rules.

Implementing the proposals in the CP can reduce costs, redirect resources in line with greatest risk and need, and improve regulatory certainty. It is therefore also an opportunity for individual insurers to improve their own competitive position � while also reinforcing the UK’s role as the international centre of commercial insurance.

London market insurers have long advocated that conduct rules should be more proportionate to the complex, commercial business they write for large, sophisticated clients. The FCA proposals have so far received a largely positive industry response, although some have called for further action in certain areas, such as excluding brokers and managing agents from being designated the lead in a co-manufacturing arrangement.

The FCA is giving insurers the flexibility to decide whether to adopt the changes or continue to apply existing rules. Firms can consider what the changes could mean for them and tailor their approach to suit:

1. Full adoption of new rules
2. Hybrid approach � cherry pick proposals delivering the greatest benefits and continue with existing approaches where no discernible benefit is to be realised, or the cost of implementation would outweigh the benefits
3. Maintain the status quo

Each has pros and cons which will be unique to each insurer, its customers and business model. 

New definition for larger commercial insurance customers

The new definition retains the product-specific elements of the 'contracts of large risks' definition, and aligns it to the organisation size thresholds for Financial Ombudsman Service (FOS) eligibility:

• Employee threshold has been reduced to 50 (from 250)
• Turnover threshold lowered to £6.5 million (from £12.8m) and
• Balance sheet thresholds lowered to £5 million (from £6.2m)

Under the proposals, a greater number of contracts for commercial customers will fall outside the scope of the insurance conduct rules, easing the regulatory burden for firms. This provides much needed proportionality, recognising the differing protection levels needed by commercial customers. 

Product review frequency — removal of annual review requirement

The FCA is proposing to replace the 12 month minimum product review requirements for non-investment insurance products in PROD 4 with risk-based frequency.

At first glance, this change will be a welcome relief, particularly for products with low or stable risk profiles or with low sales volumes. However, transitioning to a 'risk-based' approach comes with its own set of challenges. It is crucial to meticulously define the review frequency based on risk, document the rationale, and integrate this into the product review framework to ensure compliance with the rules.

The FCA intends to set out the minimum factors firms will need to consider when making these judgements. Whilst these will help to align approaches to regulatory expectations, the number and scope of these factors will determine how attractive � or complicated � the risk-based approach will be.

These changes offer flexibility and proportionality, but also the potential for more complex administrative requirements to track, execute, monitor and action product reviews that could be happening at different times and different frequencies

Lead co-manufacturer for product governance compliance

Where more than one firm is involved in the manufacture of an insurance product (co-manufacturers), they will be given the flexibility to appoint a lead insurer responsible for compliance with the insurance manufacturer’s product governance obligations in PROD 4.2 � for example, conducting the fair value assessment. As a related point, the selected lead manufacturer would also be solely responsible for the production of the IPID.

The lead insurer will be responsible for any breaches and claims that require redress. The designated lead must be an insurer or a Lloyd’s managing agent and have sufficiently significant involvement in the manufacture of the product. This flexibility will be welcomed as it prevents redundant processes and assessments, reduces costs for firms, and eliminates repetitive data requests to distributors. Additionally, it aims to better support innovation in the market. However, depending on individual co-manufacturing arrangements, some co-manufacturers may be reluctant to take on full responsibility for the product.

These changes demonstrate the FCA’s commitment to an outcomes-focused approach, differentiated by the needs of different customer cohorts, rather than a uniform application of rules.

As the changes will not be mandatory, this presents opportunities for firms to make the rules work the right way for their customers and business models, while also placing the onus on them to ensure the approach adopted does not negatively impact customer outcomes.

• Integrating regulatory change into governance arrangements, risk appetite and risk tolerance frameworks, management decision-making, internal controls and reporting procedures and processes.
• Supporting the creation of governance frameworks tailored to your business model, customer base, and risk profile. This includes formulating a strategy to determine the necessary risk-based review frequency and establishing a governance framework to evaluate and monitor it.
• Regulatory support â€� conducting gap analyses between firms' current arrangements and FCA expectations.
• Challenging thinking around proposed approaches â€� review and challenge of key inputs, assumptions and outputs.
• Reviewing or updating policies for onboarding, risk assessment and sale processes & documents so that customers can be correctly classified using the new definition, and appropriate governance in place as a result.