If you were hoping the FCA's simplification drive means a thinner, easier rulebook for insurance, this week's evidence in parliament suggests otherwise. Two of the regulator's most senior insurance figures told peers that standardising policies and wording too aggressively could backfire, leaving policies stripped back to a generic template rather than built around what the customer buying them actually needs.
David Geale, the FCA's executive director of consumers, payments and competition, and Chris Knight, its director of insurance, appeared before the House of Lords Financial Services Regulation Committee on Wednesday as part of its inquiry into regulation of the consumer insurance market. The Financial Ombudsman Service gave evidence separately later that day. It was the clearest public signal yet of how the regulator plans to use, and not use, the Consumer Duty more than three years after it took effect.
For firms working through their own fair value assessments right now, the message was fairly direct. Expect the FCA to keep leaning on outcomes rather than writing fresh, prescriptive rulebook chapters. But do not assume "standard wording" is the shortcut to compliance it might look like.
Geale pointed to the FCA's intervention in GAP insurance as proof the duty is already delivering. Firms overhauled commission structures after the FCA's 2022 data found that as little as 6% of GAP premiums were being returned to customers through claims, while up to 70% was going on commission along the distribution chain. The regulator estimates the resulting changes are worth around £70 million a year to consumers, a figure that deputy chief executive Sarah Pritchard also cited in an FCA speech to the ABI's annual conference earlier this year.
It is a favourite example inside the FCA because it shows the duty doing its job without a single new prescriptive rule being written. The regulator applied pressure through existing fair value requirements and left firms to fix the problem themselves.
Geale was careful not to overclaim. Based on reporting of his evidence, he accepted there is more to do, pointing to six ongoing enforcement cases in insurance as evidence that the duty carries real consequences for firms that fall short. He also left the door open to more prescriptive rules in future, but suggested that would only happen where something specific genuinely needs spelling out in detail, rather than as a return to detailed rulebook-writing by default.
Knight, giving evidence alongside him, made a point that will land with anyone who has tried to standardise policy wording across a long distribution chain. Identical language does not guarantee identical understanding. Even in parts of the market that already use standard terms, he said, consistent wording does not automatically produce consistent interpretation once a customer is actually reading it.
Pressed on how the FCA is tackling that understanding gap in practice, Knight pointed to a familiar set of warning signs: rejected claims, underinsurance, and complaints that turn out to be unfounded. Under the duty, he said, firms are now expected to ask themselves why those things are happening, rather than simply processing each case and moving on.
For anyone landing on this story without three years of Consumer Duty coverage behind them, the regime took effect in July 2023. It is built around three cross-cutting rules - acting in good faith, avoiding foreseeable harm, and supporting customers to pursue their financial goals - and four outcomes firms must evidence: products and services that meet real needs, fair price and value, customer support, and consumer understanding. That last outcome, understanding, was largely what Geale and Knight were being tested on this week.
The FCA's framing - resist standard wording and focus on outcomes instead - sits a little awkwardly against what brokers themselves have been telling trade bodies. Jill Hambley, managing director at UKGI Group, told Insurance Business earlier this year that confusion about the rules is still widespread on the ground, describing insurers taking a "platinum-plated approach" to data requests from intermediaries that duplicates information they already hold.
Her point was not that rules are too standardised. If anything, it was closer to the opposite: that outcomes-based regulation without clearer guidance leaves smaller firms guessing at what compliance actually looks like.
That tension - the regulator wary of over-standardising, brokers wanting more clarity on what "good" looks like - is likely to keep surfacing as the FCA's insurance simplification work continues.
The hearing landed in the middle of a busy patch for insurance regulation. The FCA's consultation on simplifying its insurance rulebook, the second phase of a programme that began with a 2024 discussion paper, closed for comments on September 4, just two days after peers heard this evidence. A separate consultation on narrowing the Consumer Duty's reach for genuinely overseas wholesale business runs a little longer, to September 18. Legal commentary on the proposals suggests a policy statement is due in early 2027, though that is worth checking against the FCA's own page nearer the time.
None of this points to a regulator handing insurers a simpler rulebook any time soon. It looks more like one still working out where genuinely pointless red tape ends and the flexibility firms - and customers - actually need begins.
