A step toward smarter, proportionate insurance rules

The Financial Conduct Authority’s latest consultation paper, CP25/12: Simplifying the Insurance Rules, represents a significant step toward achieving proportionate, flexible regulation that recognises the diversity of the UK insurance market. 

The MGAA welcomes the direction of travel and we have actively encouraged our members to provide feedback on the proposals.

At the heart of this consultation lies a review of how regulation is applied across both retail and commercial insurance markets. 

Following last year’s discussion paper (DP24/1), which sought input on reducing regulatory burdens while maintaining consumer protection, CP25/12 now sets out formal proposals for rule changes. 

These changes, the FCA states, aim to reduce costs for firms, support innovation, and ultimately enhance customer outcomes without compromising regulatory integrity.

The consultation covers a broad range of reforms, but three stand out for MGAs.

Redefining commercial customers

One of the most impactful proposals is to replace the current ‘contracts of large risks’ definition with a new classification: contracts of commercial or other risks. 

MGAs often enjoy significantly more forensic knowledge of their chosen sector and supporting products than their capital providers, and any potential move where capital always assumes the lead role, could lead to unsatisfactory customer outcomes. 

This new definition aligns customer thresholds with those used to determine access to the Financial Ombudsman Service, helping to streamline compliance across ICOBS, PROD, and the Consumer Duty. 

Crucially, the FCA has opted to retain product-specific exemptions (e.g., for aviation and marine insurance), following strong industry feedback – something the MGAA advocated for in our response.

This change should help MGAs and carriers to categorise customers more consistently, reduce unnecessary regulatory burdens for large corporates, and better support innovation in the commercial insurance space. 

However, it is essential that the final guidance avoids ambiguity and recognises the nuances in how MGAs operate compared to larger insurers.

Co-manufacturing and bespoke contracts

The paper also proposes greater flexibility in co-manufacturing arrangements, allowing one lead firm – typically an insurer or Lloyd’s managing agent – to be solely responsible for product governance requirements under Prod Four. 

This is especially relevant for the MGA model, where underwriting authority is often delegated under complex, multi-party arrangements.

We support the FCA’s decision to allow this flexibility, however our view is that it should only remain as an option and that consideration be given to MGAs taking the lead, as opposed to an insurer or Lloyd’s managing agent. 

MGAs often enjoy significantly more forensic knowledge of their chosen sector and supporting products than their capital providers, and any potential move where capital always assumes the lead role, could lead to unsatisfactory customer outcomes.  

The MGAA highlighted the importance of retaining regulatory clarity in these arrangements to prevent unintended compliance gaps, especially where MGAs act as product designers or play a key role in distribution.

Additionally, the FCA is widening the scope of the bespoke product exclusion under PROD to include insurers and intermediaries alike. 

This reflects market reality, particularly in the London Market where customised insurance solutions are the norm. We welcome this move, which acknowledges the expertise of MGAs in tailoring coverage for specialist risks.

Proportional review and reporting

Other reforms include the proposed removal of the 12-month mandatory product review cycle and the 15-hour CPD requirement for insurance distributors. 

Instead, firms would assess review frequency and training needs based on risk of consumer harm. Again, this is a shift toward principles-based regulation, one that empowers MGAs to focus compliance efforts where they matter most.

The MGAA sees these changes as pragmatic, provided firms receive sufficient guidance on implementation. Our members operate in diverse markets with varying product complexity, and clarity from the FCA will be key to embedding these reforms effectively.

As the representative voice for UK MGAs, the MGAA believes collective engagement in consultations like CP25/12 is critical.

We thank all member firms who have already shared their feedback with us. Their input will be reflected in our formal response to the FCA, submitted ahead of the 2 July deadline.

Now we await the regulator’s final decisions. If implemented well, these reforms could make the UK insurance market more efficient, competitive, and globally attractive, without compromising the standards that protect customers. But as always, the success of regulation lies not just in the intention, but in the execution.

The MGAA will continue to monitor developments and advocate on behalf of our members to ensure that implementation is practical, proportionate, and aligned with the realities of the MGA model.