Insurers are dual regulated firms in the UK. They are authorised and regulated from a standards and policies perspective by the Prudential Regulation Authority (“PRA”) and are regulated from a conduct perspective by the Financial Conduct Authority (“FCA”). The regulation of insurers operates under the framework of legislation established by the Financial Services and Markets Act 2000 (“FSMA”). Insurers are also subject to the rules and guidance set out in the FCA Handbook and PRA Rulebook (“Rules and Guidance”). The Rules and Guidance have been heavily influenced by EU insurance directives, which sought to put in place a harmonised regime of insurance regulation across the EU. Must of this has, to date, been retained following the UK’s exit from the EU.
The PRA (or FSA as it was at the time) decided some years ago to introduce a modern risk-based approach to financial requirements for UK insurers based on individual capital assessment by firms adjusted, where necessary, by capital guidance from the PRA. In many respects the UK regime anticipated many of the techniques in Solvency II, which was implemented in the UK in January 2016. Despite this, the implementation of Solvency II did pose a major challenge for UK insurers and the PRA continues to monitor its effects to ensure that gaps in the regulatory framework do not emerge. The extent to which UK regulation will diverge from Solvency II following Brexit remains to be seen.
Following the end of the Brexit transition period on 31 December 2020, UK insurers no longer have passporting rights into the EU, and EU insurers no longer have passporting rights into the UK. This has meant that insurers have had to reconsider and restructure the manner in which business is written across borders between the UK and the EU. EU insurers that had previously passported into the UK have been permitted to continue their UK activities under the temporary permissions regime (“TPR”), which has granted deemed authorisation to such firms. Such deemed authorisation is, however, temporary in nature and insurers currently operating in the UK under the TPR will need to either apply for full authorisation by a date prescribed by the PRA or withdraw from the UK market. No comparable regime exists within the EU, and so UK insurers that previously relied on passporting to carry out EU business have had to take more immediate steps to alter their structure. Typically this has involved writing EU business to an affiliated insurer that is licensed within the EU.
One feature of UK insurance is the unusual structure of the Lloyd’s insurance market. This is expressly recognised in the EU Directives, which include the association of underwriters known as Lloyd’s as a permitted form of insurer. The structure of the Lloyd’s market does, however, give rise to complexities both under domestic arrangements and when applying the UK prudential regime to the different participants in the Lloyd’s market – at the level of the Society of Lloyd’s, underwriting members, syndicates and managing agents.
In the UK, insurance regulation comprises not just regulation of an insurer itself, but also the personal regulation of certain individuals as part of the Senior Managers and Certification Regime (“SM&CR”). Pursuant to this regime, certain individuals holding senior management functions require approval from the PRA and/or the FCA and may personally be held accountable for failures to fulfil their responsibilities. Further, firms must certify, at the outset and on an ongoing basis, the fitness and propriety of employees who pose a risk of significant harm to the insurer or its customers. All certification staff and any other employees who do not fulfil ancillary functions are subject to the PRA and FCA’s conduct rules, breach of which may result in disciplinary action. This aspect of insurance regulation is specific to the UK rather than being derived from the EC Directives.
Customers that are dissatisfied with insurers may, in certain circumstances, take their complaint to the Financial Ombudsman Service (the “FOS”), which was established under FSMA. The FOS has jurisdiction over:
- consumer claims
- claims by micro-enterprises, i.e. businesses employing fewer than ten people and with a turnover or annual balance sheet that does not exceed EUR 2m
- claims by small or medium sized enterprise (SME), i.e. a business that is not a micro-enterprise which has an annual turnover of less than GBP 6.5 million and has either a balance sheet total of less than GBP 5 million, or employs fewer than 50 people
- charities with an annual income of less than GBP 6.5 million at the time of the relevant complaint
- a trustee of a trust which has a net asset value of less than GBP 5 million at the time of the relevant complaint.
The FOS has jurisdiction to make awards of up to GBP 350,000 (excluding interest and costs) for a complaint relating to an act or omission that occurred on or after 1 April 2019, or GBP 160,000 for one that occurred before 1 April 2019. It provides a scheme whereby disputes between qualifying insureds and insurers may be resolved quickly and with minimum formality by an independent body, without recourse to UK courts. The FOS is not bound by precedent, but rather must determine cases based on what the Ombudsman considers to be fair and reasonable in the particular circumstances of the case. As a result, FOS decisions can be unpredictable and there is a perception that they tend to favour the complainant.
In addition, the London Market through the Contract Certainty Steering Committee and Market Reform Group (a cross London Market organisation) has implemented a code of practice called the Contract Certainty Code of Practice along with a template insurance contract, the Market Reform Contract, of which version 2.1 was issued in April 2021 on a phased basis. The new version will be the required standard for new and renewal business from 1 August 2021. The idea is to (a) ensure that contract terms are clear and unambiguous by the time the offer is made to enter into the insurance contract, or the offer accepted; and (b) have the contract documentation provided to the insured promptly. This means within seven working days for retail customers and 30 calendar days for all other client classifications, with the timescales measured from the later of (1) the date on which the contract is concluded or (2) the policy incepts (and where there is more than one participating insurer, the date on which the final insurer enters into the contract). The Market Reform Contract sets out certain policy terms which must be separately and clearly labelled.
Scotland
Although there are separate legal systems and procedural differences between the jurisdictions of the UK, the law relating to insurance in England, Wales, Scotland and Northern Ireland is substantially the same. Most insurance in the UK is written out of London and is consequently governed by English law.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our privacy policy.