FCA Publishes 2026 Insurance Regulatory Priorities: Distribution Oversight, Friction and Vulnerable Customers in Focus
On 24th February 2026, the FCA published its Insurance Regulatory Priorities letter, setting out where supervision will concentrate across the sector over the coming year.
The signal to the market is clear. Distribution design, behavioural bias and oversight structures are central supervisory issues.
This letter also reflects the FCA’s revised approach to regulatory communication, following its blog “A smarter approach to communicating our regulatory priorities”. Rather than issuing multiple portfolio letters, the FCA now provides consolidated supervision statements for each sector. The objective is greater clarity, multi-year visibility and more predictable engagement.
This sits squarely within the Consumer Duty framework and the FCA’s broader commitment to outcomes focused, risk-based regulation.
Key Themes and Priorities
Improving Consumer Understanding, Claims Handling and Service Quality
The FCA continues its response to the Which? super complaint regarding poor claims experiences, particularly in home and travel insurance.
Areas of concern include oversight of outsourced claims handling and transparency of cover and exclusions at point of sale. Investigations and enforcement activity remain ongoing.
Claims governance and third-party oversight will remain firmly under scrutiny.
Increasing Access to Insurance
Access remains a core priority, particularly for financially vulnerable and excluded groups.
The FCA has committed to initiatives to improve contents insurance uptake among social renters and to support fair underwriting for individuals with mental health conditions. It will also finalise its Pure Protection Market Study later in 2026.
Access, affordability and fair value continue to intersect under the Consumer Duty.
Supporting Growth and Innovation
The FCA encourages responsible adoption of AI and emerging technologies in underwriting and claims.
A review of cyber insurance and consultation on a framework for captive insurance are planned in partnership with the PRA. Engagement on barriers to innovation will continue throughout the year.
Firms deploying AI or advanced analytics should expect supervisory interest in governance, explainability and outcome monitoring.
Simplifying Regulation
Building on PS25/21, the FCA will continue efforts to streamline the insurance rulebook.
Proposals include simplifying pricing returns, refining the international scope of ICOBS and PROD 4, and considering disapplication of the Consumer Duty for non UK business.
Simplification does not mean reduced accountability. It means clearer expectations.
Friction, Default Bias and Behavioural Design
A notable shift in tone concerns the design of sales journeys and behavioural architecture.
The FCA expects firms to monitor friction, default options and behavioural triggers that may distort consumer decision making. This includes default payment methods, opt out mechanisms and under disclosed exclusions.
Poor outcomes are not always driven by misconduct. They are often embedded within product design, digital interfaces and incentive structures.
Behavioural governance is moving from theory into supervision.
Oversight of Distribution Models
Distribution oversight continues to attract attention, particularly in relation to outsourced claims functions, appointed representatives and delegated authority models.
The FCA will assess whether governance structures are robust, whether remuneration aligns with fair outcomes and whether firms maintain effective control across complex distribution chains.
For many firms, this will require renewed scrutiny of oversight frameworks, management information and accountability mapping.
Other Supervisory Focus Areas
- Life insurance: outcomes for consumers in closed books such as Child Trust Funds
- Funeral plans: effectiveness of FPCOBS rules introduced in 2022
- Financial crime: review of systems and controls at larger firms, with good practice findings to be shared
- Operational resilience: implementation of new incident and material third party reporting requirements
Timelines
- Q1 to Q2 2026: Sales process reviews, claims handling investigations and financial inclusion pilots
- Q3 2026: Captive insurance consultation and cyber insurance report
- Throughout 2026: Finalisation of the Pure Protection Market Study, monitoring of premium finance APRs and continued simplification of regulatory returns
What Should Firms Be Considering Now?
Firms should assess which of these priorities apply to their business model and risk profile. In particular:
- Reviewing end to end sales journeys for friction points and default biases that may impair outcomes
- Reassessing oversight frameworks for claims handling, outsourced functions and distribution chains
- Engaging with FCA consultations on simplification, including CP25/35 to CP25/37
- Evaluating AI deployment and operational resilience in light of FCA Sandbox and AI Lab initiatives
- Revalidating Fair Value Assessments under the Consumer Duty, particularly where premium finance or complex distribution models are used
The FCA has set out its direction of travel. This is less about isolated rule changes and more about structural governance, behavioural design and demonstrable consumer outcomes.
Firms that treat this letter as a strategic signal, rather than a checklist exercise, will be better positioned to evidence sound oversight, defensible decision making and sustainable compliance through 2026 and beyond.
