The insurance industry plays a pivotal role in the financial security of individuals and businesses alike. In the UK, this sector is rigorously regulated to ensure consumer protection, financial stability, and market integrity. At the heart of this regulation is the Financial Conduct Authority (FCA). While the FCA's reach extends beyond insurance, its impact on this industry has been particularly significant. In this post, we explore the history of the FCA's involvement in insurance, tracing its evolution and the key milestones that shaped its role today.
The Birth of the FCA: A Response to Crisis
The FCA was officially established on 1 April 2013, but its roots lie in the aftermath of the 2008 global financial crisis. Before the FCA, financial services regulation in the UK was managed by the Financial Services Authority (FSA). The crisis exposed critical weaknesses in this regulatory framework, particularly the lack of a clear separation between prudential regulation (ensuring firms are financially sound) and conduct regulation (ensuring firms treat customers fairly).
In response, the UK government initiated a major regulatory overhaul:
-The FSA was abolished.
-Its responsibilities were split between:
- The Prudential Regulation Authority (PRA), under the Bank of England, overseeing systemic stability and soundness of insurers and banks.
- The Financial Conduct Authority (FCA), focusing on consumer protection, market integrity, and competition.
Early Responsibilities in Insurance
From the outset, the FCA assumed a proactive and consumer-centric approach to regulating insurance firms. Its remit included:
-General insurers (e.g., home, motor, travel).
-Life insurers (e.g., life cover, pensions).
-Insurance intermediaries and brokers.
The FCA introduced a risk-based supervision model, prioritising firms and products most likely to cause harm to consumers or markets.
Key Regulatory Milestones
1. Treating Customers Fairly (TCF)
Though developed under the FSA, TCF became a cornerstone of the FCA's conduct regulation. Insurers were required to embed fairness into their culture, pricing, and product design.
2. Thematic Reviews
The FCA launched detailed thematic reviews into areas of concern, such as:
-Add-on insurance products (e.g., gadget and travel insurance).
-Mis-selling of payment protection insurance (PPI).
-Pricing practices in home and motor insurance.
These reviews highlighted systemic issues, leading to market-wide reforms.
3. General Insurance Pricing Practices Market Study (2020-2021)
One of the most high-profile actions came in the form of a landmark investigation into “price walking” — the practice where loyal customers paid higher premiums than new ones. As a result:
-From January 2022, insurers must offer renewing customers the same price as new customers for equivalent cover.
-Enhanced product governance and pricing fairness rules were implemented.
4. Consumer Duty (2023)
The Consumer Duty, introduced in July 2023, represents a major shift in the FCA’s expectations. It raises the standard of care across financial services, including insurance, requiring:
-Products to meet customer needs.
-Communications to be clear and understandable.
-Value to be fair and demonstrable.
Challenges and Ongoing Focus Areas
The FCA continues to tackle several challenges within insurance:
-Digital transformation and the rise of insurtechs.
-Greenwashing and ESG disclosures in sustainable insurance.
-Access and inclusion, ensuring vulnerable customers are not excluded from insurance protection.
The FCA also plays an active role in ensuring the industry adapts to evolving risks, such as cyber insurance, climate-related perils, and parametric insurance models.
The FCA’s role in insurance regulation has evolved significantly since its inception. From cleaning up legacy issues to driving innovation and customer-focused reforms, the FCA has positioned itself as a dynamic and responsive regulator. Its ongoing influence will be key in shaping a fair, transparent, and resilient insurance market in the UK — one where consumers are better protected and businesses held to higher standards.
