FCA's Regulatory Priorities for insurance explained

The Financial Conduct Authority (FCA) has published its inaugural Regulatory Priorities report for the insurance sector, replacing the portfolio letter model it has used for many years. In a significant structural change, more than 40 portfolio letters have been consolidated into a single, sector-wide document published annually.

The FCA is explicit that this report is directed at Boards and Chief Executives, who are expected to read it carefully and act where necessary. The FCA's overarching message is clear: firms doing the right thing can expect a lighter supervisory touch, whilst those causing harm can expect swifter and more decisive intervention.

This briefing summarises the four headline priorities, highlights what is new or different in the FCA's regulatory messaging and sets out practical steps firms should take in response.

The report

Priority 1: Improving consumer understanding, claims handling and service quality

Applies to: Retail and wholesale insurers, insurance intermediaries, price comparison websites and life insurers.

The FCA has identified persistent problems with the quality of consumer claims experiences. Whilst some good practice has been found in home and travel insurance, the regulator has identified material areas for improvement, particularly where firms outsource processes. The FCA's Motor Total Loss claims work is expected to result in approximately 270,000 drivers receiving compensation, and ongoing supervisory and enforcement investigations into home and travel claims handling are continuing.

What is new:

The FCA's focus on outsourced claims processes is notably sharper and more specific than in previous communications. The expansion of the FCA's oversight review to include different delegated authority models and remuneration arrangements represents a material escalation in scrutiny.

The commencement of consultation on reflecting the Digital Markets, Competition and Consumers Act 2024 in the FCA's Handbook is an entirely new legislative dimension.

Practical steps for firms:

• Conduct a thorough audit of claims handling procedures, particularly in home and travel lines, benchmarked against the Consumer Duty outcomes framework.
• Map all outsourced claims processes and delegated authority arrangements, ensuring robust governance and meaningful management information are in place for each relationship.
• Review how your firm communicates cover to consumers at both the point of sale and the claims stage and consider running consumer comprehension testing.
• Price comparison websites should review the information they provide to ensure it genuinely supports consumer understanding rather than facilitating comparison on price alone.

Priority 2: Increasing access to insurance

Applies to: Retail and wholesale insurers, insurance intermediaries, price comparison websites and life insurers

Access to insurance is a key regulatory concern, with the FCA noting that some of the most vulnerable consumers in society currently lack adequate cover. The FCA's market study on premium finance found that the cost of paying for insurance monthly has fallen since 2022, saving consumers an estimated £157 million annually, though Fair Value Assessment concerns remain unresolved for some firms.

Interim findings from the pure protection market study show the market is working well in many respects, but a protection gap persists, with the final report due later in 2026.

What is new:

The explicit link to the Government's Financial Inclusion Strategy represents a material broadening of the FCA's insurance agenda. Specific commitments, including increasing home contents insurance uptake for social renters and reviewing travel insurance underwriting decisions for consumers with pre-existing mental health conditions, go well beyond the FCA's traditional supervisory focus and reflect a deliberate alignment between regulatory priorities and Government social policy objectives.

The emphasis on smart data and insurance use cases in the Smart Data Accelerator is also new territory.

Practical steps for firms:

• Review both the Government's Financial Inclusion Strategy and the Motor Insurance Taskforce final report and identify where your firm can take practical action.
• Revisit Fair Value Assessments for premium finance products: the FCA has already questioned firms and will continue to monitor APRs closely.
• Review whether your product range adequately serves vulnerable consumers, assessed through the lens of the Consumer Duty.
• If you operate in the pure protection market, engage with interim market study findings now, ahead of the final report due in Q3 2026.
• Explore the FCA's Innovation Hub for propositions that could meaningfully improve access to insurance for underserved consumers.

Priority 3: Supporting growth and innovation

Applies to: Retail and wholesale insurers, insurance intermediaries, price comparison websites and life insurers

In a notable departure from previous FCA insurance communications, which were more exclusively focused on consumer harm remediation, the FCA has explicitly identified growth and innovation as a regulatory priority. The FCA encourages firms to experiment with artificial intelligence (AI) and to use its sandbox services and Innovation Pathways, including the Supercharged Sandbox for smaller market participants. 

This year, the FCA will evaluate AI deployment across the insurance value chain – including underwriting, claims and consumer services – and will review cyber insurance to improve its understanding of risks, opportunities and barriers to purchase. Jointly with the PRA, the FCA will also consult on a new regulatory framework for captive insurance.

What is new:

This is the most significant tonal departure in the report. The FCA now explicitly wants a competitive and innovative market that rewards high standards and encourages new entrants. The captive insurance framework consultation is an entirely new initiative, the cyber insurance review reframes a risk management topic as a growth opportunity, and the AI review goes well beyond prior general guidance to assess actual deployment across the insurance value chain.

Practical steps for firms:

• Consider testing AI use cases through the FCA's AI Lab or Sandbox before wider deployment, demonstrating a proactive compliance culture.
• Engage with the FCA's cyber insurance review as it develops: This is a genuine opportunity to shape the regulatory environment.
• If considering a captive insurance structure, monitor the forthcoming PRA/FCA consultation closely and plan to engage during the consultation period.
• Prepare to participate in the FCA's “future of insurance products” dialogue planned for Q3 2026.
• Smaller firms should be aware of the Supercharged Sandbox, which offers dedicated innovation support tailored to their needs.

Priority 4: Simplifying regulation

Applies to: Retail and wholesale insurers, insurance intermediaries, price comparison websites and funeral plan providers

The FCA acknowledges that its rules have grown considerably over time and has committed to a programme of simplification. In the past year, the FCA has removed some product-specific insurance rules and product governance requirements and has given firms more flexibility on product review intervals and professional development requirements.

This year, further simplification measures are planned, including responding to consultations on removing product-specific rules, rationalising conflicts of interest rules, and deleting three pricing practices data returns. The FCA will also consult on disapplying the Consumer Duty to non-UK business and on reviewing the international scope of ICOBS and PROD 4. Separately, working with HM Treasury and the PRA, the FCA will review the Senior Managers and Certification Regime with the aim of halving its regulatory burden.

What is new:

The commitment to halve the burden of the SMCR is entirely new and represents an unprecedented statement of regulatory rollback, signalling a fundamental shift in regulatory philosophy. The proposed disapplying of the Consumer Duty to non-UK business is also new and is particularly significant for firms operating in the London market and other wholesale or cross-border contexts.

Practical steps for firms:

• Follow and respond to the open consultations on rule simplification (CP25/35, CP25/36 and CP25/37) where relevant to your business.
• If you operate in wholesale or cross-border insurance, monitor the forthcoming consultation on disapplying the Consumer Duty to non-UK business closely.
• Engage proactively with the FCA on data requirements, as this is a rare opportunity to reduce reporting burden by direct engagement.
• Begin planning for SMCR reform now, mapping current regime obligations and identifying where burden reduction could apply.

Additional areas requiring attention

Child Trust Funds

The FCA will consider how life insurers are ensuring good outcomes for consumers with closed book products, including Child Trust Funds, in 2026.

1. Funeral plan rules review: The FCA will review the FPCOBS sourcebook rules introduced in 2022 to assess whether they are delivering intended outcomes.
2. Financial crime systems and controls: The FCA is reviewing financial crime systems and controls across a sample of larger firms and will share findings with the wider industry in 2026.
3. Operational resilience: New rules for reporting operational incidents and material third-party information will be introduced alongside the PRA following CP24/28.
4. Pet and private medical insurance: Both lines continue to be monitored by the FCA for potential future action, given price rises and consumer understanding issues.
5. Ghost broking: The FCA continues to flag this criminal practice as a concern and encourages collective industry action to combat it.

Conclusion

The FCA's February 2026 Regulatory Priorities report represents a genuine recalibration of the regulator's posture towards the insurance sector. The consolidation of more than 40 portfolio letters into a single document is itself a statement of intent, and the four priorities (improving consumer understanding and claims handling, increasing access to insurance, supporting growth and innovation, and simplifying regulation) together reflect a regulator that is more commercially engaged than at any point in recent memory, but whose enforcement appetite has not diminished.

Firms that fail to address claims handling obligations, cannot demonstrate robust oversight of outsourced arrangements, or fall short on Consumer Duty requirements face a regulator with both the tools and the stated willingness to act swiftly.

Equally, the FCA is offering firms an unprecedented opportunity to shape the regulatory landscape on AI, cyber insurance, captive frameworks, SMCR reform and Consumer Duty simplification. Those who engage early will help write the rules they live by. The time to act is now.