The Evolving Role of Regulators in Insurance Supervision

Finex Learning
Aug 5
3 min read

Updated: Aug 11

In an era of rapid digital transformation and rising systemic risks, regulatory supervision of insurance firms is undergoing a major shift.

From the UK’s PRA and FCA to EU and global bodies like EIOPA and IAIS, 2025 is shaping a future where consumer protection, solvency, innovation, and AI governance must coexist efficiently and ethically.

1. Prudential Oversight and Financial Resilience

The PRA’s 9 January 2025 “Dear CEO” letter outlines its key supervision priorities, emphasizing financial and operational resilience, risk management, reinsurance governance, and embedding the Solvency UK reforms that have replaced Solvency II
Larger insurers particularly life firms utilising complex derivatives will face tighter liquidity reporting, including daily stress testing and monthly disclosures by end of 2025

2. Consumer Protection and Conduct Regulation

The FCA continues to enforce the Consumer Duty, requiring firms to deliver good outcomes for retail customers. It is reviewing areas such as motor finance premium lending, scrutinizing high APRs and consumer vulnerability
Recent reforms exempt many large commercial insurance contracts from retail conduct rules, streamlining regulation for big corporate clients while retaining protections for SMEs and individual policy‑holders

3. Enforcement and Supervisory Activation

Although overall enforcement actions by the FCA have declined, assertive supervisory interventions have increased attestations under senior managers regime, and firm‑specific remediation directives
Enhanced accountability frameworks under the Senior Managers & Certification Regime (SM&CR) ensure individuals in key roles are personally responsible for governance and conduct

4. Cross‑border Coordination and International Standards

At the EU level, EIOPA as part of the European System of Financial Supervision continues to guide consistent microprudential standards across member states including continued evolution of Solvency II
Internationally, the IAIS published the first global Insurance Capital Standard (ICS) in late 2024 to harmonize capital adequacy requirements for globally active insurers

5. Technology, AI, Cyber‑risk and Innovation

Regulators are closely examining the use of AI and data‑driven underwriting models. Concerns include discriminatory pricing and fairness, with public sentiment opposing unfair differentiation based on opaque data practices
Cyber resilience and digital operational risk remain top of the agenda, aligning with EU frameworks like DORA (Digital Operational Resilience Act) and requiring insurers to strengthen ICT incident management and third‑party oversight

6. Balancing Growth and Regulatory Efficiency

Political pressure in the UK has tasked regulators with reducing compliance burdens. Initiatives include removing outdated reporting obligations and simplifying rulebooks while maintaining consumer safeguards
The Bank of England and FCA are exploring calibrated easing measures that allow insurers greater flexibility in investment and quicker regulatory pathways without compromising stability
However, critics such as the House of Lords committee highlight that excessive, duplicative compliance still poses a significant drain on firms’ resources

What Insurance Firms Should Prioritise

Capital & Liquidity: Implement Solvency UK changes; prepare for enhanced liquidity reporting for large firms
Governance & Culture: Adhere to SM&CR rules; ensure clear accountability and senior manager responsibilities
Consumer Outcomes: Fully embed Consumer Duty; monitor and adjust ethical pricing, especially for vulnerable customers
Digital Risk & AI: Audit AI systems for fairness; adopt robust ICT and cyber‑resilience frameworks like DORA
Strategic Engagement: Engage with PRA/FCA on rule simplification; influence consultations on conduct reforms
Cross‑border Alignment: Maintain awareness of evolving EU and IAIS standards if operating internationally

Conclusion

In 2025, insurance regulators in the UK and EU are walking a tightrope: preserving integrity, solvency, and consumer fairness while embracing innovation and reducing regulatory friction. Insurers that proactively adapt to prudential reforms, operational and consumer expectations, AI fairness, and cross‑border coordination will position themselves for both compliance and competitive advantage in this dynamic environment.