The FCA’s five-year strategy represents a shift in tone, from assertive to proportionate regulator. But it doesn’t mean that the FCA won’t tackle consumer harm where it sees it; or won’t use significant tools where it judges they are required.
At the end of July 2024, the industry was drawing a collective post-Consumer Duty sigh of relief.
The FCA had broadly praised implementation efforts, and started talking about deregulation in terms of its secondary objectives and outcomes-based approach.
However, there was no time to get comfortable or complacent. What followed in fairly quick succession were two new announcements: the launch of a market study into the pure protection market1 in August, and a second market study into premium finance for motor and home insurance2 in October. Both are part of the 'helping consumers navigate their financial lives’ part of the FCA’s strategy.
While premium finance had been a hot topic for the FCA for some time, amidst rising insurance costs, the protection market study came as more of a surprise.
The FCA progressed quickly with its premium finance review – it took just two months before firms received very detailed formal data requests. By contrast, it took seven months before the final terms of reference for the protection market study were issued in March 2025 as the regulator took the time to engage with and better understand the market.
Fair or unfair?
While the speeds differ, there’s a strong common thread between the two studies.
The FCA has framed both as being more than just an investigation into whether competition is working effectively, but whether people who buy protection products or use premium finance to buy insurance are getting fair value.
In theory, the insurance sector should be ‘ahead’ of other sectors in its understanding of fair value, and experience in justifying it. After all, firms have now had nearly four years to get used to the requirements.
But our experience is that many continue to find it challenging to produce robust assessments of fair value.
It requires a significant mindset shift, good management information (MI), and potentially tough decisions. Firms must navigate a friction with commercial realities – if you think you can’t justify the remuneration you pay your distribution partners, can you afford to move first and risk losing market share?
What should you expect from the market studies?
The information the FCA will obtain from participants in its two market studies will give unique insights about business models, distribution chains, revenues and costs. The regulator will be able to compare this to firms’ fair value assessments and judge how self-challenging firms have been. They will also be able to pick outliers.
There is a potential benefit in the FCA looking at fair value alongside a competition lens – a dose of reality around market dynamics and the difficult choices firms face. However, the FCA will also be thinking primarily about whether insurance consumers are getting fair value.
In both cases, the FCA will need to be careful that any intervention does not overshoot. Ultimately, the regulator knows that these are important products, and will have a firm eye on positive consumer outcomes.
For premium finance, the last thing the FCA wants is for customers to be unable to access motor or home insurance. And the so-called protection gap means that the FCA will not want to be seen to make it even harder on consumers to purchase the protection they need and lack.
What could happen this year?
Firms should expect an extensive and resource-intensive data collection exercise, followed by an FCA interim report.
We expect the interim report on premium finance in the summer if not sooner, and the interim report on protection before the end of 2025. Interim reports include the regulator’s initial findings about the market under consideration - and its thoughts on potential remedies. They are usually a good indicator for where the regulator will end up in terms of intervention.
What kinds of remedies might be considered?
In its history, the FCA has conducted 14 market studies. Only one (its investigation into the wholesale insurance broker market) ended up with no remedy. So, while not guaranteed, firms could see changes at the end of these studies – however, how far interventions will go is another question.
Market studies provide a robust evidence base for the FCA to intervene, and these can, in some cases, lead to very significant remedies – think General Insurance Pricing Practices. If the FCA identifies harm, it can decide if it can be addressed through:
- reference to existing rules,
- more rules or guidance,
- self-regulation
- intervention powers
- reference to the CMA
In terms of type of remedies, they may fall in the following broad categories:
- Price or commission remedies
- Intervention on fair-value
- Product specific intervention
- Information remedies
- Competition remedies
There is likely to be overlap between potential remedies, and some may involve industry initiatives or firm-specific interventions.
As these are the first market studies since the Consumer Duty, it is perhaps not surprising to see the prominent reference to fair value.
We expect the FCA to be very cautious about introducing remedies that might lead to a contraction in market or access, as this would go against the government’s growth agenda.
What should firms be doing now?
Our advice for firms is that they should be modelling the impact the various remedies could have on their business model, and thinking about how they might change the way they operate to replace any lost revenue streams.
Firms in the protection market should ensure they have mobilised to respond to the FCA’s information requests.
Firms everywhere should be taking the lessons they learned on fair value, evidence collection, and data management from Consumer Duty, and applying them now to their premium finance and protection products.
Those ahead of the game are likely to stay on the right side of the regulator, and ultimately in the good books of their customers.
Nadege is Partner and Consumer Duty Lead at Sicsic Advisory, bringing deep regulatory and governance expertise from both consultancy and over 15 years at the FCA. She will be leading a workshop on Changing Markets at our Conduct Regulation half-day conference on 17 June 2025.