FCA reopens parts of Discussion Paper on regulation of commercial and bespoke insurance

The FCA has reopened parts of its discussion paper on the regulation of commercial and bespoke insurance business, which seeks feedback on whether existing regulation strikes an appropriate balance between protecting customers from harm and enabling competitiveness within the UK market.

The discussion paper was initially published on 16^th July 2024 with a deadline of 16 September- a relatively short window for feedback. After some respondents requested more time to provide feedback, the FCA re-opened the paper with a new deadline of 10 January 2025.

The FCA is, again, asking for firms’ views on whether the FCA rules appropriately balance customer protection and competitiveness. The re-opened questions covering the following:

• Determining which rules apply to commercial insurance, including a comparison of some differing definitions of commercial clients based on balance sheet size / turnover / no. of staff etc., and options to change the FCA’s current ‘SME’ classification;
• How the rules currently apply where more than one firm is responsible for manufacturing insurance products (so where there are co-manufacturers);
• The application of ICOBS to co-manufacturing; and
• Some of the challenges around how the PROD rules apply to bespoke insurance products, and the ‘bespoke products’ exclusion.

In 2023, Parliament set the FCA a secondary objective to support the international competitiveness of the UK economy and its growth in the medium to long term.

However, the FCA has faced criticism for failing to meet this objective by failing to strike an appropriate balance between regulating to protect consumers from harm, and supporting effective competition, innovation and investment within the UK financial services industry.

In May 2024, BIBA CEO, Steve White, called for the FCA to reduce the “unacceptably high” regulatory burden faced by insurance brokers, citing research by London Economics to suggest regulation was costing brokers significantly and had adversely impacted industry growth and investment.

When the Discussion Paper was initially released in July this year, the FCA reiterated its commitment to fulfilling its secondary objective, commenting: “reducing the complexity of the FCA’s rulebook could lower costs for firms, encourage innovation and help support the risk appetite needed to support growth, ultimately boosting international competitiveness and the economy over the long-term”. 

UKGI Group strongly recommends that firms respond to the Discussion Paper to ensure their voices are heard and can be considered by the regulator; this is a notable opportunity for firms to contribute to shaping the future regulatory landscape. Firms can respond to the reopened questions by 10th January 2025 by emailing: commercialinsurancemarket@fca.org.uk.