consumer duty

In the UK, consumers benefit from strong regulatory protections in financial services, and insurance is no exception. The Financial Conduct Authority's (FCA) Consumer Duty rules set higher and clearer standards of consumer protection across all retail markets, including insurance.

It requires insurers, brokers, and other intermediaries to design and distribute products that are fit for purpose and meet the needs of a defined target market. They must provide fair value, explain policies clearly, and offer customer support that helps people use, switch or exit their cover without unreasonable barriers. This guide defines and explains the finer details of consumer duty.

What is consumer duty?

Consumer duty is the FCA's current standard of care for firms dealing with retail customers in the UK. It requires firms to deliver good outcomes for retail customers. This includes designing, pricing, selling, and supporting products in a way that proves those outcomes in practice.

Consumer duty is a package of FCA rules that are built around three core components:

1) Three cross‑cutting rules: firms must act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives

2) The Consumer Principle (Principle 12): firms must act to deliver good outcomes for retail customers

3) The four pillars of consumer duty: These four outcomes cover the main parts of the firm-customer relationship:

• products and services
• price and value
• consumer understanding
• consumer support

To whom does consumer duty apply?

Consumer duty applies to FCA‑authorised firms when they carry out regulated activities for retail customers in the UK. In insurance, this includes:

• insurers and reinsurers that manufacture retail products
• insurance brokers and MGAs
• appointed representatives and their principals
• premium‑finance and other firms in the distribution chain that can influence customer outcomes

The duty covers prospective and existing retail customers. "Retail" is defined in the relevant FCA sourcebook (e.g., ICOBS for insurance). In broad terms, however, it includes individuals buying personal lines cover and many small and micro‑business clients whose characteristics are closer to consumers than to large corporates.

The rules apply to all firms in a product's chain, not only the one that has the contract with the policyholder. If a firm helps design a product, set its price, shape how it is sold, draft customer communications, or run parts of the service or claims journey, it is expected to consider how its actions affect retail customer outcomes.

Consumer duty applies to activities within the UK regulatory perimeter. UK‑regulated firms must apply it to their in‑scope UK business, including where they serve UK retail customers from outside the country. Where firms only carry on non‑UK business or deal solely with large commercial or wholesale clients, the duty is less likely to apply.

The purpose of consumer duty

In UK insurance, consumer duty is designed to close the gap between what products promise on paper and what customers experience day to day. It pushes every firm in the chain to look at real outcomes for policyholders, not just whether documents and processes meet regulatory compliance.

For insurers, brokers and other intermediaries, that means looking at how policies work in practice. This includes ensuring:

• consumers get cover that aligns with their needs
• the overall cost matches the benefit consumers receive
• consumers understand, use, and, if necessary, can change or leave their policy without being discouraged or delayed

The duty is also meant to make firms review and improve their own behaviour over time. It encourages insurance businesses to use data on claims, complaints, and renewals. It also lets vulnerable customers to spot patterns of harm, fix poor‑value products or friction points in service, and show that their decisions consistently favour good outcomes for retail customers.

Ensuring compliance with consumer duty

For UK insurance brokers, complying with consumer duty rules is less about a single policy and more about how they design, sell and support products, and monitor outcomes for retail clients. FCA reviews now focus on evidence of outcomes, not just process. Here's how UK brokers can comply with Consumer Duty standards:

1. Place governance and culture around customer outcomes

The FCA has highlighted strong governance, clear ownership of outcomes, and tailored training as good practice. To ensure this form of compliance, brokers should:

• give consumer duty regular board‑level attention, with clear senior accountability and a named consumer duty champion where appropriate
• treat good customer outcomes as part of business purpose, strategy, and people policies, not only as a compliance project
• train all staff (including front‑line broking teams) on what the duty means in their day‑to‑day work

2. Tighten product governance and target‑market work with insurers

The FCA reports that gaps in this area are still common in the UK insurance industry. To meet the products and services outcome, brokers should:

• work with insurers to define target markets, key needs, and exclusions for each product, and record this in product governance documents
• check that their own distribution strategy matches the agreed target market and avoid selling products to customers for whom they are not designed for
• improve information‑sharing both ways with insurers, so each party has enough data to review design, distribution, and outcomes

3. Treat fair value as more than a formality

Under the price and value outcome, brokers must be able to show that retail clients receive fair value once all costs are considered. In practice, that means:

• assessing the total cost to the customer (premium, broker commission, fees, add‑ons, premium finance) against likely benefits, features, and limitations
• using meaningful metrics and data (loss ratios, claims acceptance rates, complaints, cancellation patterns, use of premium finance, distribution costs), not just comparing against competitors or stating that value is fair
• revisiting products, commission structures, or fees where data suggests poor value and documenting the changes; the FCA has criticised firms that cannot show how they provide fair value

4. Improve customer understanding instead of only checking documents

For the consumer understanding outcome, brokers should go beyond proving that documents exist. FCA work on outcomes monitoring has found weak practice where firms only track that documents were reviewed, with little insight on what customers actually understand. To mitigate this, brokers can:

• use plain language in quotes, IPIDs/key facts and renewal notices, and highlight key features, costs, exclusions, and options
• test communications with real customers or staff proxies (e.g., checking whether people can identify main exclusions, or what happens at renewal) and adjust based on findings
• pay particular attention to vulnerable customers, adapting format, channel, or level of explanation as needed

5. Strengthen support and monitor outcomes across the customer journey

Under the consumer support outcome, brokers are advised to:

• map key journeys (onboarding, mid‑term changes, use of premium finance, claims, complaints, renewals, cancellation) and remove friction points, such as harder cancellation processes than sales processes
• track service metrics that say something about outcomes (e.g., call handling, speed and quality of claims and complaint handling, time taken to process mid‑term changes), and act where they show harm or unfair barriers
• document foreseeable harms for each product, such as under‑insurance, inappropriate add‑ons, unsuitable premium finance, and link monitoring to those harms; FCA insurance reviews have praised firms that do this well

6. Build outcomes‑focused management information (MI) and board reporting

The FCA expects brokers to use data to identify, monitor and evidence customer outcomes, and to act where these fall short. Good practice for brokers includes:

• creating MI dashboards that link directly to the four consumer duty outcomes (e.g., product value metrics, distribution quality, understanding tests, support metrics, and vulnerable‑customer indicators)
• avoiding the simple repackaging of existing process data; FCA reviews highlight this as weak practice
• producing a yearly Consumer Duty board report that summarises key findings, evidence, and clear actions, with challenge from non‑executives

Penalties for consumer duty violations

Breaching or failing to comply with consumer duty rules can lead to the full range of FCA enforcement and redress consequences. These are what typically occur in consumer duty violations:

1. FCA regulatory and enforcement penalties

The FCA has said it will treat consumer duty breaches seriously and use all its enforcement tools where it finds serious misconduct, including issuing fines. Its general enforcement framework includes:

• financial penalties on firms and individuals
• public censure/naming firms under investigation where the "exceptional circumstances" test is met, as in its recent Enforcement Watch update.
• Variation or cancellation of authorisation, restrictions, and other regulatory sanctions where firms no longer meet threshold conditions
• Criminal and civil enforcement powers, used where relevant, alongside regulatory measures

2. Redress and remediation for customers

The FCA has made clear that under the duty, firms that cause harm must proactively put things right, including providing redress where appropriate. Even without a separate lawsuit, customers can still:

• complain to the firm and then to the Financial Ombudsman Service (FOS), which decides cases on what is "fair and reasonable;" the FCA expects FOS to take the duty into account
• benefit from FCA‑led redress schemes or FSCS compensation in serious cases, as part of the wider UK redress framework

3. No automatic private right of action (for now)

The consumer duty does not, at this stage, give consumers a general private right of action for breaches of the duty itself. The FCA has kept the option of introducing such a right "on the table" for the future, depending on how firms embed and comply with the duty. The organisation recently outlined its latest five-year plan to address needs like the responsible use of AI and improving data quality among other issues.

Read the latest news on consumer duty from Insurance Business UK!