Can the broker commission model survive regulatory headwinds?

Do consumers that utilise brokers really benefit from the commission model of remuneration – or is this simply a way for brokers to extract ever higher fees without actually doing any more work? 

The vast majority of brokers would select option A, but the FCA has – multiple times now – made its position clear that the commissions brokers earn must be commensurate with the value of work performed. 

It was in the regulator’s Business Plan 2021/22, published in July 2021, that it first committed to becoming a “forward-looking, proactive regulator” that was “tough, assertive, confident and agile”.

Since then, the FCA brought its flagship Consumer Duty rules into operation from July 2023, as well as flexed its muscles on enforcement by pausing all sales of guaranteed asset protection (Gap) insurance in February and March 2024 to conduct a review.

Enforcement action for this line of business focused on fair value, with the FCA noting that its data showed there were instances where some firms were paying up to 70% of their premiums in commission to parties in the distribution chain, such as dealerships. 

Clearly, the FCA sees commissions – the cost of which are mostly passed on to consumers – as an area of concern for fair value requirements in some cases.

Indeed, as far back as 2022, the regulator said it was considering limiting the amount of commission that could be paid to brokers in the case of multioccupancy buildings insurance because these were potentially a “significant cause of harm”. 

In its review of the multioccupancy buildings insurance market, published in September 2022, the FCA said that it had identified “significant shortcomings by some brokers in applying fair value rules to their remuneration practices” and, crucially, that commission increases due solely to rising premiums would not necessarily be justifiable under fair value rules. 

A better alternative? 

Such has been the furore around regulatory action in relation to commissions that many industry figures have felt obligated to defend the model in its totality. 

For example, Insurance Times columnist Stuart Reid penned a column in 2023 arguing that, while the commission model of remuneration had been abused in some outlier examples, exceptions should not be seen to define the rule. 

Reid added that intervention to make commission values transparent would also harm the effectiveness of the model, with customers likely to seek out cheaper – but not necessarily better value – options.

And it is not just Reid that felt called to defend the financial model of commissions. In its latest 2025 manifesto, entitled Partnering to deliver value and published in January 2025, trade body Biba included its own defence of this form of remuneration. 

Speaking to Insurance Times during a pre-manifesto launch briefing, Biba chief executive Graeme Trudgill explained: ”Commission is constantly under threat, but that model shouldn’t be damaged because it’s been successful for 100 years. It’s easy for people to bash because they don’t understand it.” 

In its manifesto, under a section labelled Putting customers first, the broker trade body argued that, in general, the commission model leads to “better customer outcomes”. 

It explained: ”Commission as a form of remuneration works because it preserves the principal that consumers and businesses have access to professional, regulated advice at no cost before buying an insurance policy.

”Any moves to force insurance brokers to a fee model may drive advice out of the market. Seemingly simple products – such as home, motor and travel – are, in fact, complex and advice is often needed to avoid poor customer outcomes.

“Brokers are committed to following fair value rules as required by the FCA to ensure that their commission earnings reflect the work they do, plus a reasonable margin to allow them to grow in their business.” 

Middle path

While brokers and their representatives have felt compelled to defend the effectiveness of the commission model, there is an understanding that the FCA does not view this form of remuneration as inherently flawed. 

“The FCA has challenged this idea of effectively unjustified levels of commission generated by increasing premiums with no cap on the amount that could be earned by the broker.”

FCA representatives have previously made that clear to Insurance Times, explaining that it is where the commission model can be abused that it has its concerns, not with the idea of commission generally.

This is also what Nadege Genetay, partner at regulatory consultancy Sicsic Advisory, told Insurance Times during a briefing on regulatory issues for the sector in 2025. 

Genetay explained: ”Our view is that there are a lot of headwinds around commissions. If you look at a number of publications recently, there’s been a lot of challenge from the FCA, specifically around the justification of commission, but in particular on percentage-based commission.

”This is the situation where intermediaries get more money just because premiums increase, rather than because they are putting more effort into securing insurance for their customers.” 

The FCA has, Sicsic Advisory told Insurance Times, taken particular umbrage with this practice. 

Genetay added: “The FCA has challenged this idea of effectively unjustified levels of commission generated by increasing premiums with no cap on the amount that could be earned by the broker.”

This practice has been the subject of FCA calls for evidence, with the regulator indicating that enforcement actions would follow where it finds examples of customers not being provided fair value. 

In the latest Insurance Times Schemes Index, published 20 January 2025 and covering the period between 1 July and 1 December 2024, data provided by SchemeServe showed that, in aggregate, commissions earned by brokers in some schemes had actually increased by more than the percentage increase in premiums earned.

During the period the index covered, commercial property owners schemes saw premiums earned increase by 6.2%, but commissions earned increased by 25.5%, for example. 

This is the sort of data that could tempt the FCA to begin gathering information on fair value requirements. 

Genetay added: ”The commission model has been around for a very long time and there’s not a better model to replace it – it’s more that there needs to be more controls in place.

“Specifically, there’s a need for a makeover of percentage-based models where commission is unjustified, undisclosed and uncapped and those are the three things we’re encouraging [the sector] to think about. How do we adapt the model so that it meets all three of those characteristics?”

Fundamentally, Genetay finished, the consideration for brokers should be around their levels of comfort with the commission that they’re earning – the test, she said, should be whether one would feel comfortable telling clients about the level of commission they are receiving.