Does the Consumer Duty Apply to Commercial Insurance? The Larger Commercial Customer Test

Since 9 December 2025, whether the Consumer Duty applies to a commercial insurance policy depends on who the main policyholder is. General insurance sold to a "larger commercial customer" is outside the Duty, and PROD 4 product governance does not apply to it where the conditions in PROD 1.4 are met. Insurance sold to micro-enterprises and small businesses stays in scope. PS25/21 introduced the test and deleted the old "contracts of large risks" definition.

Brokers have found this the most confusing part of the reforms, because one book of commercial business can now contain policies on both sides of the line.

The test in four questions

1. Is the contract a specialist risks contract? Railway rolling stock, aircraft, ships, goods in transit, aircraft liability, liability of ships, and credit and suretyship for a policyholder in business, where the risk relates to that business. If yes, most ICOBS and PROD 4 requirements fall away.
2. Who is the main policyholder? The party that "makes the arrangements preparatory to the conclusion of the contract". Only that party is tested.
3. Is the main policyholder a larger commercial customer? Use the thresholds below.
4. If yes, does the product meet the PROD 1.4 conditions? Where it does, PROD 4 does not apply. The Duty does not apply to the general insurance contract either.

The thresholds

The thresholds match the eligibility rules for the Financial Ombudsman Service, so a business that could take a complaint to the ombudsman stays inside the Duty. For a business that is part of a group, linked and partner enterprises are counted as the Micro-enterprise Recommendation requires.

What still applies outside the Duty

Leaving the Duty does not mean leaving the rulebook. For a larger commercial customer, ICOBS 2 (general matters, including clear, fair and not misleading communications), ICOBS 6A.3 and ICOBS 6A.7 still apply, along with the Principles for Businesses other than the Duty, SYSC and DISP where the customer is eligible. Brokers must still disclose commission on request under ICOBS 4.4.1R.

Other people covered by the policy keep their protection. The FCA confirmed that consumers who are policyholders or stakeholders, such as residential leaseholders under a block buildings policy, remain protected by ICOBS and PROD.

Worked examples

Common mistakes

• Testing the wrong party. The test applies to the main policyholder who arranges the contract, not to every company named on the schedule.
• Using group figures without checking. For enterprises, linked and partner enterprises are counted under the Micro-enterprise Recommendation, which can move a subsidiary over or under the line.
• Dropping ICOBS 2. Clear, fair and not misleading communications still apply to larger commercial customers.
• Forgetting the people behind the policy. Leaseholders and other consumers who benefit from a commercial policy keep their ICOBS and PROD protection.
• No evidence on file. Treating a customer as larger without recording turnover, staff numbers or balance sheet leaves the decision open to challenge in a supervisory review.

Records to keep

What to do now

• Add the test to new business and renewal workflows, and record the answer on each file.
• Re-map the book by product and customer type, so fair value assessments and board reporting cover the right population.
• Keep evidence of turnover, staff numbers and balance sheet where a customer is treated as larger.
• Watch CP26/22 and CP26/23, which would also remove business with non-UK customers from the detailed rules and the Duty.

Our Consumer Duty guide for brokers and MGAs covers the Duty for business that stays in scope, and our rule change tracker follows every other change.