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Britain’s financial regulator is to create a new definition of insurance for big companies, bowing to insurers’ calls for more of their commercial policies to be excluded from costly conduct and compliance rules.
The Financial Conduct Authority on Wednesday announced plans to scrap existing rules that cause confusion among insurers, push up insurance costs for companies and restrict the availability of cover for smaller groups.
The regulator said the move was part of a wider set of proposals to remove “ineffective, outdated or duplicated regulation” for insurers as it responds to calls by Sir Keir Starmer’s government to do more to support UK economic growth and competitiveness.
“We have listened to industry and we are taking action — in doing so we will reduce regulatory costs and increase the competitiveness of the already world-leading UK insurance sector, while maintaining vital protections for smaller customers,” said Matt Brewis, FCA director of insurance.
The updated definition for insurance “contracts of commercial or other risks” will align the definition of larger businesses with the existing size thresholds determining which companies can appeal to the Financial Ombudsman Service.
The regulator will continue to exclude certain types of insurance from its conduct rules, such as aviation and maritime policies. But these exclusions will not apply to retail consumers purchasing such cover, introducing a distinction between cover for container ships and canal boats or between jumbo jets and small private planes.
UK insurers writing policies for customers and risks located entirely overseas would also be excluded from conduct and compliance rules to avoid duplication and conflict with foreign countries’ regulations, the FCA said.
The FCA predicted the changes would “encourage new entrants into the market” and said they “should deliver benefits to commercial customers through enhanced competition and through new, innovative services”.
The changes “could lead to worse outcomes” for small and mid-sized companies whose insurance contracts were no longer covered by the conduct and compliance rules, the FCA said.
But it added that they were judged to have “sufficient resources to protect their own interests” and would still benefit from some of its high-level rules.
Executives in the UK commercial insurance sector, which takes in about £95bn in annual premiums, have long called for changes to rules that they say too often impose the hefty compliance requirements of retail consumers on contracts for big corporate customers.
“A new definition of large commercial insurance customers is particularly welcome,” said Caroline Wagstaff, chief executive of the London Market Group, which represents businesses across the insurance industry.
“If applied consistently across the rule book, it will allow the regulator to focus on protecting the retail and SME consumers who really need it, while reducing unnecessary regulatory requirements for corporate clients,” she said.
The FCA said the introduction two years ago of its consumer duty rules, which require companies to ensure customers receive a good outcome, meant it could scrap overlapping rules, including a requirement for insurers to review the value of their product every year.
Rolling back the scope of the consumer duty was a central plank in the lobbying agenda of the British Insurance Brokers’ Association, which is holding its annual conference on Wednesday in Manchester.