FCA Insurance Simplification Plans Put Clearer Customer Information on the Agenda

FCA Wants Simpler Insurance Rules — But Life Cover Still Needs Clear Explanations

The Financial Conduct Authority is proposing another round of changes to simplify the rules governing insurance sales, disclosures and distribution in the UK.

Its latest consultation, CP26/22: Simplifying the Insurance Rules, is part of a wider attempt to remove requirements the regulator believes are duplicative, overly prescriptive or of limited value to customers.

The FCA's objective is not to remove consumer protection.

Instead, it wants firms to have greater flexibility over how they meet regulatory outcomes, relying more heavily on principles such as the Consumer Duty rather than prescribing every piece of information and every step of the customer journey in detail.

For life insurance customers, that distinction matters.

A life policy can sometimes be bought online in minutes.

But the decision being made can last for 20, 30 or even 40 years.

If something important has been misunderstood, that misunderstanding may not become obvious until years later — potentially when a family needs to make a claim.

Simpler regulation therefore should not mean less understanding.

Ideally, it should mean customers spend less time navigating information that does not help them and more time understanding the parts of the policy that genuinely matter.

What is the FCA proposing?

The FCA published its latest insurance simplification consultation in June 2026.

Among the proposals is the removal of certain disclosure requirements within the Insurance Conduct of Business Sourcebook — known as ICOBS — where the regulator believes the information is duplicative or provides limited practical benefit.

The FCA is also proposing to give firms greater flexibility over how required information is provided.

Digital communication could play a larger role, provided information is still supplied in a durable format appropriate to the customer and the way the product is distributed.

Customers would retain the ability to request information on paper.

The regulator also wants to simplify some of the rules surrounding advised insurance sales by drawing a clearer distinction between situations involving a genuine personal recommendation and those that do not.

Other parts of the consultation concern international insurance business and professional indemnity requirements for intermediaries.

For ordinary UK life insurance customers, however, the most interesting question is simpler:

Can removing prescriptive rules make insurance easier to understand without leaving consumers with less useful information?

More paperwork does not necessarily mean better understanding

There is a reasonable argument behind the FCA's approach.

Consumers can currently encounter significant amounts of documentation when buying financial products.

Terms and conditions, product information, regulatory disclosures, privacy notices and other documents may all be provided during the same journey.

Providing more information does not necessarily mean more of it gets read.

In some cases, the opposite can happen.

If a customer is presented with pages of largely standardised information, the genuinely important parts can become harder to identify.

A shorter, well-designed explanation of the key decisions may therefore produce better understanding than simply adding another document.

But that only works if the information removed is genuinely low value.

A concise summary should make the important parts easier to see.

It should not make important limitations disappear.

Life insurance still requires several fundamental decisions

Life insurance can appear straightforward.

You choose an amount of cover, select a term and pay a monthly premium.

If you die during the period of insurance and the claim is valid, the policy pays according to its terms.

But even that simple description hides several important decisions.

How much should the policy pay?

How long should it last?

Should the cover remain level or reduce?

Should two people be insured jointly or separately?

Is critical illness cover included?

Who receives the money?

And is the premium guaranteed or capable of changing?

Our guide to how much life insurance you may need explains why mortgage debt, income, children, childcare, savings and workplace benefits should be considered together.

The right amount is not necessarily the largest amount somebody can afford.

It is the amount that reasonably matches the financial problem being protected.

Policy term can matter as much as the amount insured

A £300,000 policy lasting ten years is a very different product from £300,000 of cover lasting 30 years.

The cover amount may be identical.

The protection period is not.

Someone protecting a 25-year mortgage may want the policy to run broadly alongside that debt.

A parent may want protection until children are expected to become financially independent.

Another customer may only need cover until retirement, when pension assets and savings are expected to replace the financial dependency.

Our guide to how long life insurance should last explains why the policy term should normally be connected to the period during which somebody would suffer financially if the insured person died.

This is precisely the kind of decision that cannot be reduced to a headline monthly price.

Level and decreasing cover solve different problems

Policy structure matters too.

A level-term policy normally maintains the same insured amount throughout the policy term.

A decreasing-term policy reduces over time and is commonly associated with repayment mortgage protection.

Someone whose main objective is to clear a reducing repayment mortgage may find decreasing cover appropriate.

Someone wanting to leave a fixed amount for a family as well as protecting housing costs may prefer level cover or a combination of arrangements.

Our guide to decreasing-term life insurance for mortgage protection explains why reducing cover can work alongside a repayment mortgage but may not provide the same wider family protection as a fixed benefit.

Neither structure is inherently better.

They simply address different needs.

A simplified sales process still has to make that distinction clear.

Critical illness cover adds another layer

The need for good explanations becomes even greater when critical illness cover is included.

Life insurance and critical illness insurance do not insure exactly the same event.

Life insurance primarily protects other people financially if the insured person dies.

Critical illness cover can provide money while the policyholder is alive if they are diagnosed with a condition covered by the policy and satisfy its definition.

Our guide to life insurance versus critical illness cover explains the difference.

For critical illness cover, understanding the policy definitions becomes particularly important.

Simply seeing the word “cancer”, for example, does not mean every diagnosis described medically as cancer will necessarily produce a claim.

Policies define the conditions and levels of severity they cover.

Some may also contain survival requirements or other claim conditions.

The customer therefore needs more than a statement saying critical illness cover has been included.

They need to understand what kind of event actually triggers the benefit.

Combined policies need especially clear explanations

Life and critical illness cover are frequently combined into a single arrangement.

That can be convenient and may reduce the overall premium.

But the structure matters.

Some combined policies can pay once following either a qualifying critical illness claim or death, meaning a successful critical illness claim can bring the life cover to an end.

Separate policies can operate differently.

Our guide to combining life insurance and critical illness cover explains why customers should understand whether they are purchasing one benefit capable of paying once or separate protection against different events.

A simplified digital journey could explain that extremely well.

A poorly designed one could allow a customer to click through without ever appreciating the distinction.

The regulatory challenge is encouraging the former.

Income protection is different again

Income protection adds another set of decisions.

Rather than primarily paying a lump sum following death or a specified diagnosis, income protection is designed to provide an income when the insured person cannot work because of illness or injury and meets the policy's claim definition.

The definition of incapacity matters.

So does the deferred period — the length of time somebody must normally be unable to work before payments begin.

The maximum claim period can also dramatically change the value of the policy.

One product might provide benefits for a relatively short period.

Another could potentially continue paying while the claim remains valid until a much later age.

Those differences may not be obvious from the monthly premium.

Again, simplification should make them easier to identify rather than compressing them into wording customers overlook.

Family income benefit illustrates why product names are not enough

Even within life insurance itself, the form of the payout can differ.

Traditional term life insurance often pays one lump sum.

Family income benefit is generally designed to provide regular payments for the remaining policy term following a valid death claim.

Our guide to family income benefit explains how this differs from receiving one large lump sum.

A family might prefer a £300,000 payment immediately.

Another might prefer an income designed to replace £2,000 a month for a defined period.

The underlying objective can be similar — protecting the household following a death — while the mechanics are completely different.

Customers need enough information to understand which structure they have actually purchased.

The Consumer Duty remains central

One reason the FCA believes it can remove or simplify some detailed requirements is that the regulatory framework has changed.

The Consumer Duty now requires firms dealing with UK retail customers to focus on outcomes rather than simply demonstrating that they completed a checklist.

That includes whether products and services provide fair value, whether communications support customer understanding and whether customers receive appropriate support.

The FCA's latest insurance consultation does not simply remove those expectations.

In many areas, the regulator is effectively asking whether detailed rules are still necessary where broader outcomes-based requirements already exist.

That creates more flexibility for firms.

But it also places greater responsibility on them.

A firm cannot necessarily defend a confusing customer journey simply by saying all the required documents were technically made available.

The question increasingly becomes whether customers were given a reasonable opportunity to understand the decision they were making.

Consumer understanding matters particularly in protection

Protection insurance has a characteristic that makes this especially important.

The product may not be tested for decades.

Someone buying car insurance can discover relatively quickly how well the policy operates if they have an accident.

A life insurance customer may pay premiums for 25 years before their family ever needs to deal with the insurer.

By then, the person who originally bought the policy may no longer be there to explain why it was structured in a particular way.

That makes clear policy information unusually important.

Our guide to what life insurance actually pays out for explains how different policy structures can affect the form and destination of a claim payment.

Understanding the policy at the beginning makes it much easier for the arrangement to perform the job it was intended to do many years later.

Price still matters — but it cannot tell you whether the policy is right

Simpler digital journeys can also make price comparison easier.

That can be good for consumers.

Life insurance needs to remain affordable for potentially decades, and there is little value in choosing elaborate protection that becomes impossible to maintain.

But a cheaper premium does not automatically represent better value.

A lower price may simply reflect a lower amount of cover.

It may reflect a shorter term.

One quote may exclude critical illness cover while another includes it.

A decreasing policy may look cheaper than a level policy because the amount at risk falls over time.

A joint policy may cost less than two single policies while providing a different overall potential payout.

The meaningful comparison is therefore not:

Which premium is cheapest?

It is:

Which policy provides the protection I actually want at a price I can sustain?

Digital journeys can improve understanding when designed well

This is where the FCA's proposed flexibility could potentially help.

A traditional policy document can contain everything required and still be difficult to navigate.

A well-designed digital journey can present information in layers.

A customer choosing the term could immediately see why the term matters.

Someone adding critical illness cover could see how a claim changes the policy.

A person selecting decreasing cover could see the insured amount falling over time.

Important exclusions could be highlighted at the point where they become relevant rather than hidden among pages of generic documentation.

This does not mean the full policy contract becomes unnecessary.

Customers still need access to the legal terms governing the cover.

But good design can help them understand the important decisions before they reach that document.

A short summary is not the insurance contract

There is nevertheless a limit to simplification.

A product summary may explain the main features of an insurance policy.

It cannot necessarily reproduce every definition, exclusion and contractual condition.

Customers should therefore distinguish between explanatory material and the full policy wording.

The first should make the product understandable.

The second determines the contractual position.

That distinction becomes particularly important where a claim depends on detailed wording.

Critical illness definitions are an obvious example.

A summary might describe cover for heart attacks.

The full wording determines precisely what clinical criteria need to be met.

Simplification should help the customer reach that important information.

It should not encourage them to assume the headline is all they need to know.

Advice and non-advised sales need a clearer distinction too

The FCA's consultation also proposes simplifying some of the rules around advised insurance sales.

The regulator wants a clearer distinction between insurance sales involving a personal recommendation and interactions where no personal recommendation is being made.

For consumers, that distinction matters.

Providing information about insurance is not necessarily the same as recommending that a particular customer should buy a particular policy.

Likewise, using a comparison or quote service does not automatically mean somebody has received personalised advice.

Customers should understand which service they are receiving because their expectations should differ accordingly.

Someone making their own choice needs enough information to compare the options properly.

Someone receiving advice should expect the recommendation to take account of the information relevant to their circumstances.

Simpler regulation does not remove the customer's decisions

Whatever final form the FCA's rule changes take, the fundamental questions facing somebody buying protection remain largely unchanged.

Who depends financially on you?

What would happen if you died?

How much money would be needed?

How long would that need continue?

What happens if you become seriously ill but survive?

What protection already exists through savings, a partner or employment?

Those questions determine the need.

Regulation determines how firms must behave while helping customers address it.

Our guide to how much life insurance you need is therefore still a more useful starting point than simply searching for the cheapest premium.

What happens next?

The FCA is currently consulting on the proposals in CP26/22: Simplifying the Insurance Rules.

Following an extension to the consultation period, responses can be submitted until 19 September 2026.

The proposals form part of a much broader programme of insurance-rule reform.

The FCA already finalised an earlier package of insurance simplifications in December 2025, and further changes to reporting, product governance and the application of the Consumer Duty have continued during 2026.

The direction is increasingly clear.

The regulator wants fewer rules that dictate exactly how firms complete every process and greater emphasis on whether customers ultimately receive good outcomes.

That could make insurance journeys shorter and easier to navigate.

But it makes the quality of the remaining information more important.

The bottom line

Insurance regulation does not become better simply because there is less of it.

Nor does consumer protection automatically improve because customers receive more paperwork.

The useful test is whether somebody can understand what they are buying and whether the product does what they reasonably expect it to do.

For life insurance, that means understanding the amount insured, how long cover lasts, whether the benefit stays level or reduces, who is insured and what happens when a claim occurs.

For critical illness cover, definitions and claim conditions matter.

For income protection, the incapacity definition, deferred period and potential benefit duration can fundamentally alter the protection provided.

The FCA's attempt to simplify insurance regulation could help if it removes information that distracts customers from those decisions.

But simpler rules should ultimately produce clearer protection, not thinner explanations.

For anyone comparing cover, start with how much life insurance you may need, then consider how long the policy should last and whether level or decreasing mortgage protection better matches the need.

You can also visit Life Insurance Explained for guides covering policy structure, critical illness, family protection and claims.

If you want to explore available cover based on your own circumstances, you can request a life insurance quote.

Sources

Financial Conduct Authority — CP26/22: Simplifying the Insurance Rules, June 2026.

Financial Conduct Authority — CP26/23: Consumer Duty — Scope and Proportionality, June 2026.

Financial Conduct Authority — PS25/21: Simplifying the Insurance Rules, December 2025.

This article is for general information only and does not constitute financial, legal or insurance advice. Product features, definitions, underwriting, premiums and claim requirements vary between insurers and individual policies.