Consumer understanding is not satisfied merely because an insurance firm has provided the disclosures required by ICOBS or placed all material policy terms somewhere in the customer documentation. Under the Consumer Duty, firms within scope need to support retail customers in making effective, timely and properly informed decisions, which requires attention to whether important information is designed, delivered and monitored in a way customers can understand.
This is especially important in insurance because the significance of a term may not become apparent until the customer needs to claim. Exclusions, excesses, cover limits, eligibility conditions, renewal terms and premium finance can each materially affect the customer's outcome even where the underlying wording is legally accurate.
The FCA's March 2026 publication on consumer understanding gives firms a clearer benchmark. It describes communication design, testing, monitoring and governance as a coherent end-to-end process and highlights the use of plain language, structure, visual hierarchy, layered content, customer testing and behavioural evidence. For insurance firms, the practical task is to apply those principles to the real journey rather than treat consumer understanding as a one-off document review.
Start with the decisions the customer needs to make
A useful communication framework begins by identifying what the customer needs to understand at each point in the journey. The information necessary to decide whether to buy the policy is not identical to the information needed to make a claim or decide whether to renew.
At purchase, customers may need to understand the nature of the cover, significant exclusions, limits, excesses, price and any important eligibility conditions. A broker may also need to explain the nature of its service, fees or other material aspects of the distribution arrangement. At renewal, changes in cover or price may become central. During a claim, the customer needs clear information about what evidence is required, what the firm is doing and how the decision will be made.
This helps prevent a common weakness: supplying a large volume of technically complete information without prioritising the terms that matter most to the customer's immediate decision. The FCA's current approach does not require every communication to contain everything. It requires firms to consider what the customer needs, when they need it and how it should be presented.
The communication should also reflect the complexity of the product and target market. A specialist commercial policy may appropriately use technical terminology that would be unsuitable in a mass-market retail journey, while a simple retail product should not become difficult to understand merely because documentation has accumulated over time.
Important exclusions and limitations need more than legal accuracy
Insurance disputes often arise because the customer's expectation of cover differs from the policy that was actually purchased. That does not mean every declined claim proves that the original communication failed, but repeated misunderstanding of the same limitation should prompt the firm to examine whether the information is sufficiently clear and prominent.
A significant exclusion should be considered in the context of the customer decision. If the exclusion materially limits the circumstances in which the customer can benefit from the policy, burying it within lengthy documentation can make the overall communication less effective even if the wording itself is technically accurate.
The same principle applies to excesses and limits. A customer may know that an excess exists without understanding how it operates across different parts of the policy, while a low sub-limit can materially change the practical benefit of cover. Firms should identify which features are most capable of affecting customer expectations and give them appropriate prominence.
Claims information is particularly valuable in this analysis. If a recurring decline reason involves a term that customers consistently say they did not understand, that is evidence the firm should consider. The response may involve clearer language, different timing, improved prominence or a change in the product itself.
Design and presentation should support comprehension
The FCA's 2026 consumer understanding work emphasises that good communication is not only about the words used. Structure and presentation can materially affect whether customers recognise and understand important information.
Plain language is often helpful, but simplification should not remove necessary precision. The objective is to make regulatory and product information understandable without making it misleading. Shorter is not automatically better if the result omits a qualification the customer needs to make an informed decision.
Layered content can be useful in digital journeys. A customer may first see the core information necessary to decide whether to continue and have access to more detailed information where required. This can be more effective than placing every technical term on the first screen or forcing the customer through long blocks of text before allowing progress.
Visual hierarchy also matters. Headings, spacing and ordering can help customers recognise the most important features. Firms should be cautious about designs in which promotional benefits receive strong visual emphasis while exclusions, costs or limitations are presented with materially less prominence.
The design should be assessed across devices and channels. A communication that works on desktop can become difficult to understand on mobile, and a scripted telephone explanation creates different risks from a written journey. Testing should reflect how customers actually interact with the firm.
Test important communications before and after launch
The FCA expects testing to form part of the communication process where proportionate. The depth of testing should reflect factors such as the importance, complexity and potential impact of the communication rather than a universal requirement to conduct extensive research on every routine message.
Pre-launch testing can identify problems before customers are affected. This may involve customer research, usability testing, staff review or other methods appropriate to the firm and communication. The purpose is to understand whether the intended audience can identify and comprehend the information needed to make the relevant decision.
Post-launch evidence is equally important because real customer behaviour can reveal issues that controlled testing did not anticipate. Complaints, call recordings, recurring customer questions, website analytics, journey drop-off and claims disputes can each provide information about whether communications are working.
The strongest firms connect these sources rather than treating them independently. If digital analytics show customers repeatedly abandoning a particular stage while call-centre data shows the same stage generating confusion, the combined evidence can justify redesign even if formal complaints remain low.
Testing should also produce action. Recording that a communication scored poorly without changing it or documenting why it remains appropriate provides limited assurance. Governance should show what the firm learned and what it did as a result.
Digital journeys need particular attention to timing and friction
Insurance is increasingly bought and serviced through digital journeys, which makes the sequencing of information important. A customer may move through quote, eligibility, product selection, optional add-ons and payment rapidly, and material information can lose practical relevance if it appears only after the decision has effectively been made.
The firm should therefore identify where key information needs to appear to influence the customer. Terms that materially affect whether the product meets the customer's needs should not be presented so late that the customer has already committed psychologically or operationally to the purchase.
Friction should also be assessed carefully. Some friction can be beneficial because it prompts customers to consider an important decision. Other friction can create unreasonable barriers or encourage customers to abandon a process without understanding the consequences.
The Consumer Duty does not require every journey to be frictionless. It requires firms to use design in a way consistent with good outcomes. Insurance firms should therefore be able to explain why significant design choices exist and what customer evidence shows about their effect.
Where third-party distributors control part of the journey, the manufacturer or MGA may need information about how its product is presented. A strong product document cannot compensate for a distributor journey that systematically obscures important limitations.
Distribution chains need consistent product information
Consumer understanding can break down when several firms communicate different parts of the same proposition. An insurer may produce product information, an MGA may create sales material and a broker may control the final customer interaction. Each participant needs enough information to perform its role without creating inconsistency or contradiction.
Manufacturers should provide distributors with the information required to understand the product and target market, while distributors need to communicate appropriately with the customers they serve. The precise responsibilities differ, but the overall customer journey should not leave material gaps between firms.
Version control is an important practical issue. If policy wording changes but broker scripts, websites or comparison information remain outdated, customers can receive inconsistent explanations of the same product. Firms should know how material communication changes are distributed and how old content is removed.
Oversight should be proportionate. An MGA distributing through a large broker network may not control every sentence used by an independent intermediary, but it should have sufficient governance over product information and relevant distribution evidence to identify where customer understanding is being undermined.
Claims and complaints are a live test of understanding
Claims provide some of the strongest evidence about what customers thought they had bought. A pattern of claims for excluded circumstances, recurring disputes about excesses or repeated surprise about limits can indicate that the communication or product design deserves review.
The correct analysis should be careful. A customer can misunderstand a clear term, and a declined claim does not automatically demonstrate a Consumer Duty breach. The regulatory value lies in identifying patterns rather than assuming a conclusion from a single case.
Complaints should be analysed similarly. Broad categories such as "coverage" or "customer service" may conceal more useful information about which feature caused confusion and at what stage the misunderstanding arose. Root-cause analysis should therefore connect complaint evidence back to the communication and customer journey.
The Financial Ombudsman Service can provide another source of insight where relevant. An Ombudsman outcome may indicate that the firm's explanation, evidence or customer treatment was insufficient and should prompt consideration of similar cases.
These feedback loops are valuable because they test communications against actual customer experience. Consumer understanding is stronger when claims and complaints can trigger changes in sales material, policy information or distribution guidance.
Vulnerable customers may need different communication support
The Consumer Duty requires firms to pay appropriate attention to customers in vulnerable circumstances, but consumer understanding should not be reduced to a generic vulnerability statement. The practical question is whether a customer's circumstances create a communication need that should change the way information is delivered.
This can involve alternative formats, additional explanation, more time, different channels or assistance from another person where appropriate. The response should be proportionate to the need rather than based solely on a vulnerability label.
Insurance claims can create new vulnerabilities that were not present at purchase. Bereavement, illness, theft or displacement can affect the customer's ability to process information, so claims communications should be designed with that context in mind.
Management information should therefore consider whether customers requiring additional support are receiving appropriate outcomes. Counting accessibility requests or vulnerability flags is less useful than understanding whether the available adjustments enabled customers to understand and act on the information provided.
Governance should connect design, testing, monitoring and change
The FCA's 2026 message is that consumer understanding should operate as an end-to-end process. That requires clear ownership of communication design, appropriate review before launch, monitoring after launch and a route for evidence to produce change.
Legal or compliance approval can be part of that framework, but it should not become a substitute for customer evidence. A communication can be legally accurate and still be ineffective for the intended audience. Equally, marketing testing alone is not enough if important regulatory information has been simplified to the point of inaccuracy.
Senior management should receive information about material communication risks and what the firm has learned from testing. This is particularly important where customer understanding is relevant to product governance, claims or Consumer Duty outcomes.
The best evidence is a clear feedback loop. The firm identified a recurring misunderstanding, investigated the cause, changed the communication or process and then tested whether customer understanding improved. That demonstrates a functioning control rather than a static communication policy.
How Regulatory Counsel can support
Regulatory Counsel supports insurers, MGAs and insurance brokers with Consumer Duty and consumer understanding reviews. Our work can include customer journey assessment, communication governance, testing frameworks, claims and complaint analysis, vulnerable customer support and remediation.
We can review a single material journey or the firm's wider consumer understanding framework.
Speak to Regulatory Counsel to discuss an insurance consumer understanding review.
Frequently Asked Questions
The Consumer Duty requires firms within scope to support retail customers in making effective, timely and properly informed decisions. The detailed requirements sit within PRIN 2A.5 and the FCA's related guidance and good-practice material.
No. Detailed disclosure rules remain important, but Consumer Duty also requires firms to consider whether communications support customer understanding in practice.
The FCA expects testing to be proportionate. The appropriate approach depends on the nature, importance, complexity and potential impact of the communication.
Evidence can include customer testing, complaints, call monitoring, recurring queries, digital analytics, claims disputes and other information showing how customers interact with communications.
Yes. We can assess the journey from product information and distribution through purchase, servicing, claims and complaints, with particular focus on the Consumer Understanding outcome.