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💲 '''Pass-through pricing''' is a pricing arrangement in insurance distribution where the cost of a specific service, product component, or third-party charge is transferred directly to the [[Definition:Policyholder | policyholder]] or [[Definition:Cedant | ceding company]] at its actual cost, without markup by the intermediary or carrier handling the transaction. In the insurance value chain, this mechanism is most commonly encountered in [[Definition:Managing general agent (MGA) | MGA]] and [[Definition:Program business | program business]] structures, where an [[Definition:Insurance intermediary | intermediary]] arranges ancillary services — such as [[Definition:Inspection | inspections]], [[Definition:Third-party administrator (TPA) | claims administration]], [[Definition:Data analytics | data analytics]] tools, or regulatory filing fees — and passes the vendor's invoice directly through to the insurer or insured rather than embedding it in a blended overhead charge or [[Definition:Commission | commission]] structure.

⚙️ In practice, pass-through pricing requires transparent accounting and clear contractual language defining which costs qualify for pass-through treatment and how they will be documented. Within [[Definition:Delegated underwriting authority (DUA) | delegated authority]] arrangements, for instance, a [[Definition:Binding authority agreement | binding authority agreement]] may specify that certain technology platform fees, regulatory levies, or [[Definition:Fronting | fronting]] charges incurred by the MGA are reimbursed at cost by the capacity provider. In [[Definition:Reinsurance | reinsurance]] broking, pass-through pricing can apply to modeling fees, actuarial consulting costs, or claims audit expenses that a [[Definition:Reinsurance broker | broker]] incurs on behalf of a client and passes along without adding a margin. The arrangement stands in contrast to bundled pricing models, where all service costs are absorbed into a single composite rate or [[Definition:Expense ratio | expense loading]], making it harder for the paying party to see what each component actually costs.

💡 The appeal of pass-through pricing lies in its transparency, which has become increasingly valued as insurers, regulators, and [[Definition:Lloyd's | Lloyd's]] managing agents demand greater visibility into the total cost of distribution. When intermediaries mark up third-party services within opaque fee structures, it can obscure the true economics of a program and complicate [[Definition:Expense management | expense management]] for carriers trying to optimize their [[Definition:Combined ratio | combined ratios]]. By contrast, pass-through arrangements allow all parties to see the actual cost base, facilitating better benchmarking and negotiation. However, the model is not without complexity: disputes can arise over what constitutes a legitimate pass-through cost versus an operational expense the intermediary should absorb, and audit provisions in the underlying contracts need to be robust enough to verify that costs are genuinely passed at par. As regulatory scrutiny of intermediary compensation intensifies in markets from the United States to the European Union and [[Definition:Lloyd's | Lloyd's]], pass-through pricing has emerged as a structural response to demands for fee transparency.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Managing general agent (MGA)]]
* [[Definition:Delegated underwriting authority (DUA)]]
* [[Definition:Commission]]
* [[Definition:Expense ratio]]
* [[Definition:Program business]]
* [[Definition:Binding authority agreement]]
{{Div col end}}

Definition:Pass-through pricing - Revision history

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