FCA 2026 Priorities: The Audit Wake-Up Call for Insurers

The FCA’s new Regulatory Priorities report for Insurance is a clear statement of where regulatory scrutiny will fall in 2026. From an audit perspective, it gives a strong indication of where boards, internal audit functions and independent assurance providers should be focusing their attention now.

For insurers, the message is direct: evidence matters. The regulator’s focus is firmly on measurable outcomes – particularly those stemming from Consumer Duty – and firms must be able to demonstrate, not simply assert, that governance frameworks are delivering fair results.

In this environment, independence is critical. Boards need objective assurance that can withstand regulatory scrutiny. While internal audit plays a central role; increasingly, firms are recognising the value of independent external support to verify, challenge and peer review internal findings, ensuring credibility and robustness.

Four areas stand out from an audit and independent assurance perspective:

1. First, claims handling and service quality. The FCA continues to prioritise consumer understanding, fair claims handling and transparency. Ongoing supervisory and enforcement activity in home and travel claims, alongside expanded scrutiny of outsourced and delegated authority arrangements, signals that operational governance is firmly in scope.

   Internal audit teams should move beyond reviewing process design and test real-world outcomes. However, boards should also consider whether independent third-party review is needed to validate findings, particularly in higher-risk areas such as delegated authority oversight or outsourced claims handling.

Key questions include: Are claims settled promptly and fairly? Is management information sufficiently granular to identify emerging harm? Are third-party administrators subject to meaningful oversight and independent challenge? Can the firm clearly evidence how Consumer Duty shapes operational decisions?

Regulators will expect assurance that is objective and defensible. Independent peer review can strengthen confidence that outcome testing is robust and not overly reliant on management narratives.

2. Second, access to insurance and fair value. Premium finance, protection gaps and vulnerable customers remain under the spotlight. The FCA is monitoring APRs and challenging Fair Value Assessments. Pricing governance, commission models and distribution economics therefore remain live regulatory risks.

   Audit functions should examine whether product governance forums genuinely challenge value metrics, whether vulnerability frameworks operate consistently across the customer journey, and whether board reporting provides a clear view of emerging consumer risk.

Again, independence matters. Fair Value Assessments in particular benefit from external benchmarking and independent review. Independent assurance can test assumptions, validate methodologies and provide boards with greater confidence that value metrics stand up to regulatory scrutiny.

Where internal audit undertakes this work, periodic independent validation or peer review of its approach can enhance credibility and demonstrate a commitment to best practice governance.

3. Third, growth and innovation, particularly AI. The FCA has positioned itself as supportive of innovation, encouraging firms to explore AI and new technologies. However, support does not reduce accountability. The regulator will assess how AI is used in underwriting, claims and customer service and whether firms are actively monitoring consumer outcomes.

   Internal audit should now be assessing model governance, explainability controls, bias testing, data integrity and third-party technology oversight. Innovation strategies must align with Consumer Duty obligations, not run in parallel to them.

Given the technical complexity and pace of change in AI, many firms will require specialist independent expertise to provide meaningful challenge. Independent model validation, peer review of governance frameworks and external testing of controls can help ensure that innovation is supported by defensible assurance.

Operational resilience and incident reporting requirements are also evolving, reinforcing the need for joined-up, independent assurance across technology, risk and compliance.

4. Finally, simplification of regulation. The FCA’s ongoing regulatory simplification agenda is an interesting development. While the regulator is streamlining rules and data requirements, this does not equate to lower standards.

   As prescriptive requirements fall away, reliance on overarching principles, particularly Consumer Duty, increases. That places greater responsibility on firms to exercise sound judgement and maintain strong governance frameworks.

For audit teams, this means reviewing how rule changes affect control environments, ensuring SMCR accountability remains clear, and testing whether reporting simplification creates unintended blind spots.

In a principles-based environment, independent judgement becomes even more important. External assurance can provide boards with confidence that interpretation of simplified rules remains aligned with regulatory expectations.

Proportionality at the fore

The overarching theme of the FCA’s report is proportionality: less intensive supervision for firms doing the right thing and stronger intervention where harm is greatest.

For insurers, that translates into one simple expectation: being able to prove that governance works and outcomes are fair.

The call to action is clear: audit is not just about testing compliance. It is about giving boards independent confidence that strategy, innovation and day-to-day operations are aligned with regulatory expectations. That confidence is strongest when assurance is demonstrably objective, combining robust internal audit with independent external verification and peer review where appropriate.

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