Top themes for the insurance sector in 2026

Delivering fair value under Consumer Duty

The FCA requires that firms ensure customers receive good outcomes and fair value under Consumer Duty, however this can be difficult to determine and evidence. It represents the relationship between the final price to consumers (including any additional costs such as commission or APR), and the benefits received (which must be of demonstrable value to the consumer).

With significant work across the sector – including the FCA’s 2024 PROD 4 multi-firm review, home and travel claims handling review and ongoing market studies on Premium Finance and Pure Protection – firms can expect an ongoing focus on fair value in 2026. As such, it’s essential to embed effective governance, oversight and accountability processes to accurately measure fair value – and crucially, to remedy any failings to prevent foreseeable consumer harm. 

Following recent consultations, the FCA has relaxed its product governance rules for general insurers (in PROD) and narrowed the scope of the Consumer Duty requirements by introducing a new definition for 'contracts of commercial and other risks'. This offers greater scope to set the frequency of reviews (previously set at 12 months), and provides a better focus on policyholders needing a higher level of protection. While this is a welcome change, firms need to design and manage its implementation, and demonstrate its thinking to the FCA.  

Key challenges for 2026

With the regulator taking a non-prescriptive approach, firms need to consider: 

• their response to the recent changes brought in by the ‘Simplifying the insurance rules policy statement’ 
• the target market for a specific product, or group of products, and whether it meets customer needs
• total financial and non-financial benefits, and whether they offer fair value for all customer segments including vulnerable customers
• key metrics – which must be product-specific and go beyond sector-wide benchmarking (as this could simply indicate wider pricing concerns)  
• ongoing assessments throughout the product lifecycle. 

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Premium finance 

In its ongoing study, the FCA is assessing whether the Premium Finance market is operating effectively, with appropriate competition and fair value for consumers. The FCA published its interim findings in July, noting that premium finance does incur a cost, but some providers’ fees materially outweigh it. On average, premium finance customers are charged 8-11% more than those who pay annually, putting greater financial pressure on individuals who may have limited financial resilience.

In addition to the Consumer Duty rules on fair value, some firms could also be in breach of PROD 4 rules, which require premiums to be reasonable and proportionate in relation to their underlying costs. 

Key challenges for 2026

The FCA’s ruled out a cap on APR or a ban on commissions – but there could be firm-specific actions, potential remediation work and rule changes ahead. To prepare, insurance firms need to review current practices to ensure: 

• all premium finance fees (including commission and APR) are proportionate, offer fair value and promote good customer outcomes
• no ‘double dipping’ where customers are charged a higher premium and monthly interest
• changes to the cost-model are appropriately forecast with a clear understanding of the strategic impact
• effective product governance, with appropriate design and targeting by customer segment.

Premium finance: a greater focus on fair value assessments

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Solvency UK 

Solvency UK aims to maintain robust prudential requirements without significantly increasing the cost of compliance. This aligns with the wider move towards regulatory simplification to streamline operations and support growth. The regime has introduced higher quality reporting templates, many of which are simpler, and firms should now be focused on embedding these updates across their processes and systems. Ongoing expectations include effective board oversight, particularly over internal model governance and risk management processes.

There are also several technical updates for firms to continue embedding. These include: changes to technical provision calculations (such as risk margins and matching adjustments); updates to the mapping of external credit ratings to credit quality steps; and amended requirements for third-country branches of UK insurers. 

Key challenges for 2026

From September 2026, firms must meet new liquidity risk reporting requirements. Although separate from the Solvency UK reforms, these rules take a more detailed and prescriptive approach and will mostly affect larger life insurers. They require the ability to carry out daily granular reporting, to provide a clearer view of liquidity during stressed conditions. Firms may need to enhance their infrastructure, data and reporting processes to meet the new expectations. 

Solvent exit planning  

Insurance firms have until 30 June 2026 to develop a credible solvent exit analysis (SEA). Updated every three years, these detailed documents will help firms exit the market safely, whether that’s due to a strategic business decision or a stressed event. The SEA must consider solvent exit options, triggers, barriers, resourcing and stakeholder communication among others. Firms must take this a step further and produce a solvent exit execution plan (SEEP) either on demand, or if an exit becomes likely.

When preparing the SEA, firms need to remember that these are not hypothetical documents; they must reflect genuine organisational practices and plausible circumstances. As such, it’s essential to take a collaborative approach, drawing on factual input from across the firm – rather than relying on assumptions from within the project team that may not reflect operational reality. 

Key considerations for 2026

To inform the SEA, insurance firms need to consider: 

• a wide range of solvent exit options, and check them for feasibility in terms of cost, resources and timescales
• how external events could influence key factors such as liquidity or financial resilience
• any additional costs for terminating service provider contracts, commuting reinsurance contracts, or consultancy fees required to execute the solvent exit 
• key person risk, recognising that many people may leave the firm during a solvent exit and additional resources may be required at higher cost than previous average (for example, due to retention bonuses). 

Solvent exit planning for insurers – top tips for staying on track

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DyGIST  

The PRA’s running the first ever dynamic general insurance stress test (DyGIST) to review the strength and robustness of the general insurance sector. Delayed from 2025, it will run in May 2026 over a three-week period and cover around 80% of the general insurance market. Simulating a sequence of adverse events to emulate real-world conditions and assess resilience, it will likely follow the proposed 2025 structure including: 

• financial impact assessments, supervisory engagement and management actions following each event
• final assessment by the end of Q2 2026, to include a quantitative analysis of the events’ impact and qualitative management responses via a questionnaire
• published findings by the end of the year.  

In their preparations, firms need to look beyond financial resilience and consider broader themes such as consumer protection, public confidence and trust.

Key considerations for 2026

Participating firms need to prepare for the DyGIST exercises to ensure accurate and reliable responses. Key considerations include: 

• preparing a robust project plan to ensure the necessary resources and skill sets are available to support the testing, with contingencies in place
• consider various plausible scenarios, involving finance, claims, actuarial and underwriting to assess the impact and processes under each
• prior engagement with all stakeholders, with clear roles and responsibilities
• early engagement with the Board of Directors to ensure they are aware of the test and available for consultation
• reviewing potential response playbooks and ensuring they remain up to date
• assessing existing capabilities around data, modelling, operations and liquidity management
• performing a dry run to assess the process and address any limitations.

Distribution models and product innovation  

Distribution models and products are evolving in line with consumer demand and emerging technologies. While currently supporting insurance firms in a range of roles (including customer services and underwriting) AI will continue to drive innovative practices in the insurance lifecycle. There’s a high likelihood of an end-to-end AI-led transaction in the near future, allowing for more tailored products for customers. This would offer more frictionless and bespoke services, while reducing costs for insurers. However, when adopting these approaches, firms need to take a customer centric approach, taking active steps to avoid foreseeable harm, and promote good consumer outcomes.

Firms also need to ensure that distribution models cater for everyone and consider customer vulnerability when providing routes for customers to make purchases. It's also essential to think about operational resilience to ensure the transformation change doesn’t negatively affect economic markets or cause financial harm. 

Key considerations for 2026

Under current distribution models, customer data is decentralised across multiple suppliers, and insurers could face regulatory and technical barriers to leverage it. Similarly, legacy infrastructure could be a barrier to putting those plans into action, shifting the initial focus to business transformation. In 2026, firms can make use of the FCA Innovation Hub, AI Lab and Digital Sandbox, to explore use cases, and trial new distribution and product models. 

For more information on top themes and challenges for the insurance sector in 2026, contact Rob Benson.

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