Why insurers can’t afford to sleepwalk into the next regulatory wave

If you work in insurance, compliance can often feel like a moving target. 

At the end of 2025 the ground shifted again with the Financial Conduct Authority’s five-year Strategy and Roadmap for Retail Insurance; changes to consumer credit regulation; and Lloyd’s tightening oversight. 

This may feel like yet another layer of rules to tick off, but if that’s your mindset, you’re already on the back foot.

This regulatory wave is not a box-ticking moment, it’s a test of whether your firm will fight to stay ahead or accept flight into non-compliance. 

Here are six key considerations for compliance professionals in insurance firms to keep on their radar over the next 12 months:   

Claims handling

Claims handling is where fairness becomes tangible. The FCA has repeatedly identified concerns in general insurance, particularly in motor and home, including:

• Premium increases driven by claims inflation.
• Weak oversight of outsourced claims providers.
• Inadequate management information.
• Cash settlements offered without proper consideration of suitability.

In its 2025 Roadmap for Retail Insurance, the FCA made clear that claims handling is central to fair value. Under the Consumer Duty, claims are not just a back-end process but a cornerstone of the customer outcome test.

If claims handling is slow, obstructive, or inconsistent, firms can expect the FCA to challenge other parts of their business model.

Simplification that complicates

The FCA’s drive to simplify the insurance rules is well-intentioned, but paradoxically it risks making compliance more complex. 

The question this optional regime brings is whether firms that choose the simplified rules run the risk of being disadvantaged if and when weaknesses are found, and those that don’t risk losing their competitive advantage.

By moving from prescriptive rules towards a risk-based, outcomes-focused approach, firms lose the comfort of checklists. For new entrants, this may feel liberating. For large, complex firms with long distribution chains, it can be daunting. 

Simplification strips away the grey space. Either you are meeting the Consumer Duty’s outcomes, or you are not; and “not” won’t remain hidden for long.

Lloyd’s oversight

Lloyd’s has strengthened its oversight framework, demanding evidence that managing agents are embedding:

• Compliance with regulatory requirements.
• Culture and conduct expectations.
• Climate and sustainability commitments.
• Sustainable performance management across the market.

This isn’t lip service. Lloyd’s oversight plans are detailed, risk-based, and expect firms to demonstrate not just what they are doing, but why it delivers the right outcomes.

For cover holders and delegated authority arrangements, the margin for error has narrowed sharply. Lloyd’s expects firms to own their risk management, not merely react when issues surface.

For managing agents and syndicates, the priority now is to map existing frameworks against Lloyd’s oversight expectations and close gaps early.

Consumer Duty Litmus Test

At the centre sits the Consumer Duty. Not as a single regulation, but as the thread that ties everything together. Commission structures, claims handling, simplification of insurance rules, and Lloyd’s oversight all orbit one central question: Are customers receiving fair value and good outcomes?

Remember, the FCA’s statutory objective is “ensuring that the relevant markets function well” and their operational objectives are consumer protection, market integrity and competition. 

The Consumer Duty is the mechanism for both. Fail, and you risk not only supervisory action but also market irrelevance in a sector where trust is the true currency.

Practical steps

So how can firms take practical steps to stay ahead of the next regulatory wave? Our advice to firms is to implement a data-driven approach. Strengthen your data capabilities, use MI to evidence outcomes, not just sales, and link commission, claims performance, cancellations, and complaints across key KPIs.

Boards must own Consumer Duty and oversight should be integrated, not siloed, with regular outcome testing at senior level.

Small firms should keep it simple but documented with supporting rationales. Large firms must break down silos, integrate systems, and focus on consistency of outcomes.

Small firms risk being overwhelmed. Resource constraints make it tempting to rely on boilerplate policies or assume being “under the radar” is a defence. It isn’t. 

Small firms must focus on proportionate risk management: clear fair value assessments, transparent communications, evidence-based customer outcome monitoring, and documented claims processes.

Large firms risk fragmentation. Multiple products, distribution models, and legacy systems make it harder to evidence consistency. The FCA will not accept a patchwork of disconnected initiatives. 

Large firms need integrated governance frameworks that align risk, conduct, and customer data into a single view to enable Boards to make timely, informed decisions.

Strategic survival

Insurance regulation is not standing still - it’s converging. The FCA’s strategy and Lloyd’s oversight are aligned and uncompromising on fair value and consumer outcomes.

The choice for firms is stark. Fight - invest in risk management, governance, and cultural change to seize competitive advantage - or flight - do the bare minimum, get blindsided by claims or fair value challenges, and slide into non-compliance.

This is no longer about compliance survival. It’s about strategic survival. So, when the FCA and Lloyd’s both come knocking will your firm be ready to open the door with confidence, or scramble to catch-up?