THE Financial Conduct Authority (FCA) is aiming to prioritise simplifying regulation in the insurance market this year with experts saying it’s a “win for both firms and customers” – while an AI expert warned that it needs to be careful about “automating bad decision-making”.
The report said the FCA has identified four priorities for the insurance market over 2026 including simplifying its rules to strike the right balance between growth and consumer outcomes.
To achieve this, the authority said that it will simplify its handbook and review its value measure rules, including the impact of the rules and how firms have implemented them, and simplify insurance rules and data requirements by assessing whether it needs more reporting changes.
The FCA will also aim to improve consumer understanding, claims handling, and service quality.
FCA director of competition and interim director of insurance, Graeme Reynolds, said: “Insurance provides vital cover for millions of consumers and businesses and contributes billions to the economy.
“We want to raise standards and improve access to insurance. And we want to enable firms to grow and innovate, including by simplifying our rules. We’re setting out our priorities clearly, so firms know where to focus their efforts.”
A mortgage broker and an independent financial adviser praised the FCA, while an AI expert warned that it needs to be careful on how it uses AI to make sure it isn’t “automating bad decision-making”.
Strong and sensible direction from the FCA
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said this would help rebuild trust in insurance.
He added: “This is a strong and sensible direction from the FCA. Insurance is essential, but for many consumers it still feels too complex, too jargon-heavy and too focused on price over real value. If the FCA can simplify regulation while maintaining standards, that should be a win for both firms and customers.
“The real opportunity is to improve clarity at the point of sale and point of claim, so people better understand what they are buying, what is covered, and what could prevent a claim being paid. Critical illness cover is a good example, where clearer definitions and upfront explanations of eligibility could help consumers compare products more intelligently, rather than simply choosing the cheapest premium.
“Better transparency, clearer language and stronger claims handling would do more than improve compliance, it would help rebuild trust in insurance.”
This would help garner trust
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth Ltd, also said trust was important.
He continued: “From an adviser’s perspective, the FCA’s continued focus on Consumer Duty in the insurance market is the right one. This has already pushed firms to think harder about value, clarity, and client outcomes, however many consumers still don’t fully understand what their policies cover or how the claims process works.
“If the FCA can now simplify rules while reinforcing the principles behind Consumer Duty, namely by offering fair value, clear communication, and reliable service at claim stage. This would help garner trust and improve client confidence in insurance products and make it easier for advisers to ensure their clients are properly protected.”
Be careful using AI
Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, said he has spotted a red flag in the report’s mention of AI.
He added: “The FCA is right to cut the red tape, but simplifying the rulebook won’t matter if the underlying technology remains a black box. The report suggests using AI to ‘minimise the burden’ on firms. Be careful. In our AI Audits, we constantly see insurers deploying ‘efficiency’ tools that simply automate bad decision-making.
“We’ve already seen 270,000 drivers needing compensation for failed claims processes, proof that bad systems cause real harm. If your new ‘simplified’ process is just a faster way for an algorithm to say ‘no’ without explanation, you haven’t improved consumer understanding, you’ve just streamlined their disappointment.
“Real transparency isn’t about shorter documents, it’s about explainable systems. If an insurer can’t explain in plain English why a claim was rejected because ‘the model said so’, they shouldn’t be trading. Simple as that.”
Photo by Jason Dent on Unsplash.
