The FCA’s Consumer Duty (PRIN 2A) raises the standard that regulated firms must meet when serving retail customers and creates new sources of customer complaint, FOS referral and FCA supervisory activity. PI insurers price for that increased exposure through underwriting questions on Duty implementation, fair value assessments, vulnerable-customer policies, and the consistency of customer outcomes data.
What Consumer Duty means in PI insurance terms
The Consumer Duty came into force for new and existing products on 31 July 2023 and for closed products on 31 July 2024. It sits in the FCA Handbook at PRIN 2A and applies to all firms in the distribution chain for retail products and services. The Duty consists of a consumer principle (“a firm must act to deliver good outcomes for retail customers”), three cross-cutting rules (acting in good faith, avoiding foreseeable harm, enabling customers to pursue their financial objectives), and four outcomes (products and services, price and value, consumer understanding, consumer support).
From a PI perspective, the Duty has three practical effects.
First, it widens the basis on which customers can complain. A pre-Duty complaint typically alleged unsuitable advice, negligent execution, or misrepresentation against the firm’s own conduct of business standards. Post-Duty, a customer can additionally allege that the firm did not deliver good outcomes — for example, that the product offered did not represent fair value, that communications were not capable of being understood by the customer, or that the firm did not provide adequate support at the customer’s lifecycle stage. The legal architecture for civil claims sits within FSMA s138D and the common-law duty of care, but the Duty supplies a substantive standard against which conduct is measured.
Second, it increases the volume and complexity of customer complaints. Firms have reported uplift in complaints since 2023 referencing fair value, vulnerable customer treatment, and the four outcomes. The Financial Ombudsman Service (FOS) has accepted Duty-related referrals and applies the Duty in its own determinations against firms.
Third, it increases supervisory and enforcement cost. The FCA has conducted Duty-focused reviews across sectors (consumer credit, retail investments, insurance and protection, payments, mortgages) and has used multi-firm reviews to set expectations. Firms that fall short face supervisory letters, business restrictions, s166 reviews, and potentially enforcement action.
PI insurers price for all three effects. The premium impact on individual firms varies with sector, distribution model, customer base and Duty-implementation quality.
How Consumer Duty affects PI cover in practice
Cover-wise, the Consumer Duty does not introduce a new exclusion or extension into the standard PI wording. The civil liability insuring clause continues to respond to claims arising from the conduct of the firm’s professional business. A claim alleging that the firm breached the Duty is, for cover purposes, a civil liability claim arising from professional conduct — subject to the usual exclusions including the fines and penalties exclusion.
The practical impact runs in three directions.
Underwriting. Insurers ask Duty-specific questions at renewal: Has the firm completed its Duty implementation? Who is the Duty champion? Has a fair value assessment been completed for each product? How does the firm identify and support vulnerable customers? Has the firm carried out a Duty-aligned review of legacy customer relationships? Firms that cannot articulate a credible Duty programme face higher premiums, lower limits or, in some segments, declination.
Claim notifications. A complaint or FOS referral that alleges Duty failings is a notifiable circumstance under most PI wordings on the same basis as any other regulator-related issue. The firm should notify at the point a substantive customer complaint is received that could foreseeably proceed to FOS or litigation, not when the FOS upholds it.
Claims handling. Insurers’ panel solicitors have built Duty-related defence practice since 2023. Defence costs are typically within the regulatory defence costs extension when an FCA supervisory matter is open, and within the main limit when the matter is a civil claim or FOS referral.
What the Consumer Duty does not change: the fines and penalties exclusion still bites on any FCA financial penalty. The exclusion of deliberate, reckless or dishonest conduct still bites where the FCA enforcement evidences such conduct. The need for circumstance notification on becoming aware of a potential claim still applies.
Worked example with realistic numbers
A Bristol-based directly authorised IFA practice with £450,000 of fee income and a £1m each-and-every PI policy serves about 280 retail clients. The firm completed its Duty implementation in 2023 with a documented programme: Duty champion appointed, fair value assessments completed across the advice and ongoing-service propositions, vulnerable customer policy in place, customer understanding tested through file reviews.
In 2025, six clients complain that the firm’s annual review service did not deliver the value justified by its £600 per annum fee, because they had received only one written review in three years and no responsive support during a period of market volatility. The complaints reference the Duty’s price and value outcome and consumer support outcome.
The firm notifies its PI insurer at the point the second complaint is received because the pattern suggests a potential proposition-level issue. Three of the six complaints are upheld at firm-level and resolved by goodwill payments totalling £4,800 (below the policy’s £10,000 each-and-every excess, so not insurer-funded). Two go to FOS; one is upheld with FOS-directed compensation of £14,000 and an additional £6,000 in fee refunds; one is dismissed. The fifth is withdrawn before FOS adjudication. The sixth is litigated; defence costs total £58,000 before settlement at £22,000.
Total insurer outlay on the litigated and FOS-upheld matters: £100,000 less the £10,000 excess on each settled claim. The £1m headline limit is reduced by the insurer payments, and the firm faces a renewal conversation where the underwriter will probe the firm’s documentation of the annual review service and the consistency of customer outcomes.
The FCA does not open a supervisory case on the firm. If it had, regulatory defence costs would have been picked up under a separate sub-limited extension, and any fine the FCA imposed would have fallen outside cover under the fines exclusion.
When this matters most
The Duty matters most for PI cover in the sectors where retail customer distribution is the firm’s core business.
Independent financial advisers and wealth managers. Suitability, ongoing service value, vulnerable customer treatment and centralised investment proposition assessment are the Duty pressure points. The IFA segment has seen the most material PI premium movement attributable to Duty exposure.
Mortgage intermediaries. Affordability, suitability across product term, treatment of customers approaching the end of their term, and treatment of customers in financial difficulty are the focal points. The Duty layers over the existing MCOB framework.
Insurance intermediaries and brokers. Fair value of insurance products, particularly add-ons and ancillaries, and customer understanding of cover are the focus. The fair value assessment requirement for insurance is intensive.
Consumer credit firms — including motor finance brokers, BNPL providers, second-charge lenders. The Duty interacts with CONC and supervisory action on motor finance commission has elevated the broader sector’s exposure.
Payment services and e-money firms — vulnerable customer policy and treatment of authorised push-payment fraud victims are areas of supervisory focus.
The Duty has less direct PI impact on B2B-focused regulated firms (institutional asset managers, corporate finance houses serving wholesale clients only), although those firms still face Duty obligations where any of their distribution chain reaches retail.
Common variations and market wording
Most insurers have not amended the core PI wording in response to the Duty. The points to watch are:
Underwriting questionnaires. Different insurers ask different Duty questions and weight the responses differently. Honest, documented responses are essential — misrepresentation at proposal can prejudice cover on a later claim. Where the firm is mid-implementation, say so.
Regulatory defence costs sub-limits. Sub-limits sit between £50,000 and £500,000 across the market. Firms with significant Duty supervisory risk should review whether the sub-limit is realistic against the cost of a multi-month FCA review with external counsel.
Past business reviews. The Duty requires firms to consider whether legacy products and ongoing-service propositions deliver good outcomes. A past business review undertaken either voluntarily or under FCA direction can produce a wave of compensation. Some insurers ask whether a past business review is underway or planned. Disclose this honestly at renewal.
Closed product cover. The Duty’s closed-product extension since July 2024 has produced complaints about products no longer sold to new customers. Run-off cover (for firms ceasing to trade) and ongoing cover (for firms still trading) both need to respond to closed-product complaints.
Aggregate limits. Where a single Duty-related issue produces multiple linked complaints, the aggregation provisions in the policy determine whether the cluster is treated as one claim (one excess, one limit consumption) or many. Read the aggregation clause.
Related concepts
- Fines and penalties PI exclusion — FCA fines following Duty-related enforcement are not insurable; civil compensation to customers usually is.
- Circumstance notification — the trigger for notifying potential Duty-related claims to the insurer.
- Civil liability extension — the broad cover that responds to Duty-based civil claims.
Frequently asked questions
Does PI insurance cover Consumer Duty breaches?
PI insurance responds to civil liability claims brought by customers and to defence costs of FCA supervisory or enforcement activity, whether the underlying allegation is a Duty breach or a more traditional breach of conduct rules. The Duty does not introduce a new exclusion. FCA financial penalties imposed at the conclusion of a supervisory matter are excluded under the standard fines and penalties exclusion, but customer compensation and defence costs typically remain within cover.
How has Consumer Duty affected PI premiums?
Premium movement attributable specifically to the Duty is hard to isolate because the regulated PI market is influenced by many factors at once, but underwriters across IFAs, mortgage intermediaries and consumer credit firms have asked more probing Duty questions since 2023 and have priced for the increased volume of FOS referrals and supervisory cost. Firms with credible, documented Duty programmes have generally fared better than firms that cannot evidence their implementation.
When should I notify a Duty-related complaint to my PI insurer?
At the point you receive a complaint that could foreseeably proceed to FOS or to civil litigation, or at the point you become aware of facts that could give rise to such a complaint. Notification is not deferred until FOS upholds or until the FCA opens a case. Late notification can prejudice cover. The notification clause in the policy sets out the trigger; in practice “circumstance” notifications are made on the same basis as any other potential claim.
Does PI cover FCA supervisory costs?
Defence costs of FCA supervisory activity — responding to information requests, attending interviews, instructing solicitors and forensic accountants — are typically within the regulatory defence costs extension on a modern PI policy, subject to a sub-limit and excess. The trigger for cover varies between wordings (sometimes opening of supervisory matter, sometimes issue of warning notice). The fine imposed at the conclusion is not insurable.
What underwriting questions do insurers ask about Consumer Duty?
Common questions: has the firm completed its Duty implementation; is a Duty champion appointed; how is fair value assessed for the firm’s products; how is vulnerable customer treatment evidenced; what review of legacy customer relationships has been carried out; what management information is used to evidence good customer outcomes; how are customer understanding tests applied. Documented honest answers are the foundation of a strong renewal submission.
Does Consumer Duty apply to closed products?
Yes, since 31 July 2024. Firms must consider Duty principles in their treatment of closed products and customers — products no longer sold but still in force on legacy customers. This is a substantial issue for life insurers, long-term protection insurers and firms with run-off books. PI cover should respond to closed-product claims on the same basis as live-product claims, subject to the policy in force at the time of notification.
Does the Duty affect run-off cover?
Indirectly. Run-off cover responds to claims notified after a firm ceases to trade for work done before cessation. Duty-related complaints can be made about historic advice during the firm’s trading period, including about the firm’s failure to apply Duty principles to legacy customers from 2023 onwards. Run-off cover should have a retroactive date that captures the firm’s full trading period and a limit sized for foreseeable Duty-era complaint exposure.
Will my PI policy respond to FOS-directed compensation?
Yes, in the ordinary case. FOS-directed compensation is a civil liability the firm owes to the customer and falls within the civil liability insuring clause, subject to the policy excess and limit. The fact that the determination came from FOS rather than a court does not change the cover position. Where the FOS award includes a distress and inconvenience element, that is also compensation rather than punishment and is generally covered.
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About Apex Insurance Brokers Ltd
Apex Insurance Brokers Ltd is a Bristol-based UK insurance broker specialising in professional indemnity cover for regulated and non-regulated professional firms. Apex is authorised and regulated by the Financial Conduct Authority, firm reference number 724952, and is registered at Companies House under number 07014570. Contact: info@apexinsurancebrokers.co.uk or 0117 325 0027.
Last reviewed: May 2026 by Apex Insurance Brokers Ltd.
Important: this article is general information, not advice on your specific circumstances. For advice on PI insurance for your firm, contact us on 0117 325 0027 or info@apexinsurancebrokers.co.uk.