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💵 '''Insurance commission''' is the compensation paid by an [[Definition:Insurance carrier | insurer]] or [[Definition:Underwriting | underwriting]] entity to an [[Definition:Insurance agent | agent]], [[Definition:Broker | broker]], or other [[Definition:Intermediary | intermediary]] for producing, placing, or servicing insurance business. Commissions represent the primary revenue model for much of the global insurance distribution chain — from individual retail agents selling [[Definition:Personal lines | personal lines]] policies to large [[Definition:Wholesale broker | wholesale brokers]] and [[Definition:Managing general agent (MGA) | MGAs]] handling complex [[Definition:Commercial insurance | commercial]] and [[Definition:Specialty insurance | specialty]] risks. The rate, structure, and regulatory treatment of commissions vary substantially across markets: in the United States, commissions are typically embedded in the [[Definition:Premium | premium]] and expressed as a percentage of [[Definition:Gross written premium (GWP) | gross written premium]]; in the [[Definition:Lloyd's of London | Lloyd's]] market, [[Definition:Brokerage | brokerage]] is deducted from premium before it reaches the [[Definition:Syndicate | syndicate]]; while in some European and Asian jurisdictions, regulators have imposed disclosure requirements or outright bans on certain commission arrangements to reduce conflicts of interest.

🔧 Commission structures take many forms depending on the line of business, distribution channel, and commercial agreement. A flat percentage on new and renewal business is the simplest model, but many arrangements layer in [[Definition:Contingent commission | contingent commissions]] (also called profit-sharing or bonus commissions) that reward intermediaries when the portfolio they produce meets profitability or retention targets. [[Definition:Override commission | Overrides]] compensate managing intermediaries who supervise sub-agents or aggregate volumes. In [[Definition:Reinsurance | reinsurance]], [[Definition:Ceding commission | ceding commissions]] flow in the opposite direction — the [[Definition:Reinsurer | reinsurer]] pays a commission back to the [[Definition:Cedant | cedant]] under [[Definition:Quota share | quota share]] or other [[Definition:Proportional reinsurance | proportional treaties]] to compensate for the cedant's acquisition and administrative costs. Each of these arrangements is typically defined within [[Definition:Binding authority agreement | agency or brokerage agreements]] that specify rates, payment timing, and clawback provisions in the event of policy cancellation or [[Definition:Premium | premium]] adjustments.

📈 The way commissions are structured and regulated shapes the behavior of the entire insurance value chain. High upfront commissions can incentivize volume over quality, contributing to adverse [[Definition:Selection | selection]] or [[Definition:Churning | churning]] — a concern that has led regulators in markets such as India, Australia, and parts of Europe to cap commissions or mandate fee-based advice in certain segments. Conversely, well-designed contingent commission programs can align intermediary incentives with [[Definition:Underwriting profitability | underwriting profitability]], encouraging better risk selection and retention. From an accounting perspective, commissions represent a significant component of the [[Definition:Acquisition cost | acquisition cost ratio]] and are central to metrics like the [[Definition:Combined ratio | combined ratio]]. Under [[Definition:IFRS 17 | IFRS 17]], the treatment of acquisition cash flows — including commissions — directly affects the [[Definition:Contractual service margin (CSM) | contractual service margin]] at initial recognition, making commission strategy not just a distribution question but a financial reporting one.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Contingent commission]]
* [[Definition:Ceding commission]]
* [[Definition:Acquisition cost]]
* [[Definition:Broker]]
* [[Definition:Combined ratio]]
* [[Definition:Binding authority agreement]]
{{Div col end}}

Definition:Insurance commission - Revision history

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