UK Insurance Regulation: Looking Ahead To 2026

With the PRA having just announced its supervisory priorities for 2026, it is timely to give an overview of the evolving regulatory landscape for the UK insurance sector. This briefing explores a number of changes that align with the UK Government's ongoing commitment to fostering growth and competitiveness, together with other aspects of regulation that are likely to remain high on firms' agendas.

1. Growth and competitiveness – a continuing priority

The UK Government's growth agenda aims to reduce unnecessary friction in the regulatory system. Its Regulation Action Plan, published in March 2025, laid out cross-economy reforms to ensure that regulation enables innovation while maintaining accountability.

The Treasury's July 2025 Financial Services Growth and Competitiveness Strategy applied this blueprint to financial services. It drives a shift in regulatory philosophy, putting regulators under pressure to streamline rules and demonstrate measurable support for sector growth.

Targeted reforms of the regulatory system are designed to deliver:

• Faster decisions: cutting statutory deadlines for authorisations and senior manager approvals
• Less red tape: streamlining regulatory obligations and reporting requirements
• Strategic clarity: requiring reg
• Efficient disputes handling: fairer, quicker dispute resolution through reform of the Financial Ombudsman Service

In line with this agenda, the FCA has recently confirmed a number of changes that are aimed at simplifying its insurance rules. These include reducing the protections that are provided under the rules to larger commercial customers and giving firms greater flexibility over how product governance requirements are met. By recalibrating protections to ensure that retail-style rules apply where they are most needed, the intention is to reduce the burden on firms where they are not needed so much.

The FCA has signalled that, while it is prepared to support the UK Government's growth agenda, meaningful reductions in regulatory requirements cannot proceed responsibly without clear political guidance on what level of consumer harm is acceptable. It has warned that deregulation will inevitably lead to more failures and to customer harm and has asked the UK Government to articulate a durable risk appetite so the regulator is not later criticised for outcomes that stem directly from policy choices.

On 15 January 2026, the PRA also confirmed its commitment to supporting growth and competitiveness through both the development of policy and in its supervisory approach. Work that is currently being undertaken on a new captive regime and on alternative life capital options is highlighted, together driving inclusive growth through the use of mutuals. The PRA also announced adjustments in supervision, including faster authorisation times for new firms and changes to the frequency of firms' Periodic Summary Meetings.

SMCR reform

The Senior Managers and Certification Regime (SMCR) is undergoing its most significant review since its inception. Responding to concerns that the current framework is unnecessarily burdensome on firms, HM Treasury's July 2025 consultation sets out structural changes designed to reduce the regulatory burden on firms by as much as 50%. These include:

• removing the Certification Regime from legislation so that regulators can set rules more flexibly;
• reducing the number of senior roles that require pre-approval; and
• simplifying the requirements for Statements of Responsibilities.

In parallel, the FCA and PRA published consultations focusing on relatively modest reforms that can be implemented without legislative change. Final rules are expected by mid-2026.

Once the new laws are in place, more radical changes can be made by the regulators, in line with the Treasury's aims. Firms should get involved at this stage to make sure the changes work well.

Firms have welcomed the effort to streamline a regime that is often seen as overly complex. The loosening of the regulatory reins will, however, increase the onus on firms to demonstrate oversight and compliance, which brings its own regulatory risks.

Captive Insurance

In July 2025, HM Treasury confirmed its intention to establish the UK as a more attractive destination for captive insurers. Proposals for a new captive insurer regulatory regime include:

Introducing tailored regulation that reflects captives' typically lower risk profiles, including reduced capital requirements, simplified reporting obligations, faster authorisation procedures, and lower fees compared with standard insurers.

Introducing legislation to allow captives to operate through protected cell companies (PCCs), making it feasible for smaller businesses and enabling captive formation within multi-cell entities.

Differentiating between direct-writing captives and reinsurance captives.

The FCA and PRA will set the detailed rules for the new regime, using their existing powers (no new legislation is thought to be needed). They are expected to consult on the new framework in summer 2026 with the aim of implementing it by mid-2027.

The UK Government argues that the success of a modern and competitive captive insurance framework should not depend on the availability of tax incentives. It will not, therefore, be providing any. It remains to be seen whether its approach will be sufficient to attract business from other jurisdictions with a more established captive offering.

2. Prudential Regulation

Matching Adjustment

The PRA has continued to make tweaks to the new Solvency UK framework since its implementation in December 2024. Earlier in 2025, the PRA published its consultation on the 'Matching Adjustment Investment Accelerator' (MAIA). The purpose of the MAIA is to remove the requirement to obtain prior approval from the PRA before a firm can claim Matching Adjustment (MA) benefit on certain assets, thereby making it easier for insurers to take advantage of investment opportunities more quickly. This is expected to promote growth in the UK insurance sector and broader economy – by unlocking investment in sustainable and productive assets, including illiquid private assets.

Feedback on the proposed framework focused on practical issues – what assets could be invested in, to what value, how long would insurers have to claim MA relief on the assets and so forth. Following the consultation, the PRA published its policy statement in October. The rules have been refined to an extent. In particular, the PRA has removed some more prescriptive rules about what assets can be included, and instead provided that firms should apply a proportionate and risk-based approach to assessing asset eligibility. Other aspects of the new framework remain largely unchanged, including the MAIA exposure limit (the lower of 5% of the best estimate liabilities, net of reinsurance, of the MA portfolio and an amount proposed by the firm which is no greater than £2 billion). Firms will also need to have robust contingency plans dealing with a scenario where assets held using MAIA permission are determined by the PRA to be MA ineligible. Firms will need to regularly stress test these contingency plans.

Alternative capital for life insurers

In November 2025, the PRA published a discussion paper exploring how the UK life insurance sector might access alternative forms of capital. In doing so, the PRA acknowledges that a number of firms are attempting to move to capital light business models, make more use of reinsurance and explore joint ventures with partners providing capital and/or investment expertise.

The PRA's entry into this debate is intriguing. It notes that it is not the PRA's role to direct market innovation, but it is trying to be proactive in exploring where there are regulatory barriers to fresh capital entering the sector.

The discussion paper serves two purposes. The first is to set out a number of questions for the sector to consider, which explore both what firms might want to achieve and also potential risks to the PRA's objectives. The second is to articulate a number of regulatory principles, which are intended to help frame the discussion. These are that:

• The quality and quantity of capital required to support insurance risks should not be lowered through the use of alternative life capital structures.
• The risk transferred to the capital markets through alternative life capital structures should be contractually-bounded and time limited.
• Cedants will need to manage tail and residual risks resulting from their use of alternative life capital structures.
• Alternative life capital structures should predominantly result in capital relief, not balance sheet financing.
• A level of risk retention by the insurer is necessary in any such structures and the UK insurer should only make limited use of alternative life capital structures.
• The alternative life capital structures should not alter the control a UK cedant has over the management of its business.

When considering the discussion paper, it is worth being aware of the PRA's previous comments in the context of funded reinsurance. Some of the points the PRA made in its paper on that topic are consistent with these regulatory principles and so will provide insight into how the PRA thinks about some of the issues.

Given these principles, and the range of proven existing reinsurance and derivative solutions available to companies, it is likely that any changes that flow from the discussion paper will be evolutionary and not revolutionary. The PRA is not expecting alternative life capital structures to fundamentally change how firms originate new business, but the hope is that industry's feedback will give confidence that the initiative can lead to viable new approaches.

The deadline for responses is 6 February 2026.

3. Conduct Regulation

Advice Guidance Boundary Review and the introduction of Targeted Support

Hailed as a "once-in-a-generation change" to its advice rules, the FCA launched proposals on targeted support last year as part of its wider Advice Guidance Boundary Review. The review seeks to tackle mounting concerns that a large proportion of UK consumers are not getting the financial help they need when making (or not making!) investment decisions impacting their long-term financial health. The FCA's proposals aim to address this by offering a new form of regulated advice that provides "ready-made suggestions" designed for groups of consumers with common characteristics, referred to as "consumer segments". Targeted supported will be carved out as a new regulated activity at Article 55A of the RAO, with an accompanying regulatory framework that aims to achieve "better outcomes" for customers. See our article on this last year for more information.

In December, the FCA published its near final rules for the new targeted support regulatory framework, following feedback from the sector. Key changes include:

• Changing terminology from 'better outcomes' to 'better position' to more clearly state the policy intent and avoid potential confusion with 'good outcomes', which firms must act to deliver under the Consumer Duty.
• Updating rules and guidance on consumer segments, to require that firms do not use a level of detail that, broadly, a firm that provides investment advice would associate with a comprehensive consideration of a consumer's characteristics or circumstances.
• Allowing firms to direct consumers to whole of market annuity brokerages and not requiring a break between targeted support and annuity sales journeys.

The FCA expects the new rules to take effect from 6 April 2026. At the same time, the FCA published two joint statements with other regulatory bodies. Thefirst, with the Financial Ombudsman Service, clarifies how the FCA and the Financial Ombudsman Service will work together in the event of future complaints relating to targeted support. Thesecond, with the Information Commissioner's Office, addresses how firms can communicate with consumers in the context of existing direct marketing rules.

Modernising the redress system

In acknowledgement of concerns that the FOS has turned into a "quasi-regulator", the Treasury published a consultation in 2025 with a view to ensuring that the FOS returns to its original purpose of being a simple, impartial dispute resolution service. The proposals include:

• clarifying the scope of the FOS's 'fair and reasonable' jurisdiction to require the FOS to find that a firm's conduct is 'fair and reasonable' where it has complied with relevant FCA rules;
• introducing a mechanism for the FOS to seek the FCA's views on rule interpretation in confirming compliance;
• imposing an absolute time limit of 10 years for bringing cases to the FOS; and " making it easier for the FCA to intervene quickly on a mass redress event.

In parallel, the FCA and the FOS published a consultation paper on modernising the redress system, including introducing an updated framework for dealing with mass redress events and a new FOS case process to streamline case handling and ensure decisions are taken at the right level in the organisation.

Overall, these proposals (which we examined in an earlier briefing paper foundhere) are to be welcomed and it is encouraging that both the UK Government and the regulators are making proposals which go beyond previous attempts at reform. Overall, the proposals represent a significant shift aimed at improving fairness, consistency, and efficiency across the system. However, they are in some respects quite high level and the devil will inevitably be in the implementation detail before we can conclude that they will indeed be effective.

Other developments

The proposed reforms in the Pension Schemes Bill will be of interest to the life sector. The changes this piece of legislation could usher in are significant, with many of the proposals looking to drive consolidation between pension schemes. Our pensions team prepared a briefing paper, and the impacts of this bill will be felt over the coming years.

In 2024, the FCA launched a market study on how well the distribution of pure protection insurance products – including term assurance, critical illness, income protection and whole life insurance - is working for customers, particularly regarding fair value. The FCA has now published a market overview) and a summary of its quantitative customer research, and intends to publish an interim report with initial findings and proposed next steps in early 2026. As the ABIobserves, the FCA has conducted 14 market studies to date, and only one has ended up with no remedy. Firms offering pure protection should therefore expect the FCA to act on the results of this review and prepare accordingly.

The FCA also launched a review of the premium protection market in 2024, and published its update paper in July 2025. The paper revealed a wide variation in the rates firms charge for premium finance, with significant differences according to how the insurance is distributed. This is a concern for the FCA given that it is more vulnerable customers that typically rely on premium finance, and they intend to carry out further analysis of these trends in 2026. Firms should benchmark their products against the FCA's findings.

In 2024, the UK Government set up a Motor Insurance Taskforce aimed at understanding why the cost of motor insurance continues to rise, and the impact of this on vulnerable customers. Its final report, published in December 2025, contains a list of actions for the FCA to take forward. Aside from its premium finance work, the FCA will be conducting further analysis on the cost of motor insurance for particular customer groups and will be partnering with the ABI to consider how claims can be better managed to ensure greater efficiency and cost control, without adversely affecting customer outcomes. It will also be continuing to try to combat fraudulent activity online, such as 'ghost broking', where scammers pose as insurance brokers and issue fake or invalid policies, and 'ad-spoofing', which involves posting fake adverts with the intent of illegally harvesting data and upselling unnecessary services.

4. Key Risk areas

AI

The use and experimentation of AI within financial services will continue in 2026, creating both risks and exciting new opportunities and risks for the market. In a recentupdate, the FCA confirmed that firms should apply existing regulatory frameworks when deploying AI (and that a separate AI-specific regulatory framework would not be created for now at least). In doing so, the FCA highlighted the importance of firms complying with the Consumer Duty in an AI context (e.g. that firms should be mindful of the risk that AI embeds or amplifies bias, that leads to outcomes that are unjustifiably worse for some groups of consumers). Likewise for SM&CR: use of AI in relation to an activity, business area, or management function of a firm will fall within the scope of a SMF manager's responsibilities. In other words, AI is having an impact in many parts of insurers' business, just as other transformative tech has done in the past.

Cyber

Following a number of high profile cyberattacks on Marks & Spencer, the Co op Group, JLR and others last year, cyber risks will be on the minds of senior managers and boards in the sector. In October, the Bank of England, PRA and FCA published Effective practices: Cyber response and recovery capabilities. This document outlines good practice with regard to responding to high severity cyber disruption, recovering from disruption, responding to disruption at a material third party and the scope for firms to work collectively to build resilience. Cyber risks will be front and centre of firms' thinking about operational resilience.

Climate Change

In December, the PRA published a policy statement, setting out the outcome of its consultation on revisions to its previous supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing climate-related risks. SS3/19 has been replaced in its entirety and a new supervisory statement (SS5/25) took effect on 3 December 2025. The new supervisory statement provides an updated set of expectations that consolidates published PRA feedback, reflects new international standards and embeds improved understanding of climate-related risks. It aims to ensure firms build the capabilities to effectively manage climate related risks, in line with the PRA's primary objectives to promote the safety and soundness of the firms it regulates and secure an appropriate degree of protection for insurance policyholders. It is also intended to support firms in managing climate-related risks in a proportionate way, thereby furthering the PRA's secondary objective to facilitate effective competition in the financial markets for services provided by firms. Firms are required to conduct an internal review and gap analysis against the SS5/25 expectations by 3 June 2026.

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