Commission (Provision)

Concept

Commission is the performance-based fee that an insurer pays an insurance intermediary – an agent or broker – for successfully placing or ongoing servicing of an insurance contract. It is usually calculated as a percentage of the placed premium and is generally already factored into the policyholder’s premium.

Types of Commission

A distinction is generally made between new business commission, paid for the initial placement of the contract and frequently spread over the first policy years or paid out upfront as a lump sum (Zillmerization), and renewal or servicing commission, paid throughout the contract term for the ongoing servicing of the policyholder.

Debate over Conflicts of Interest

Commission-based remuneration has for years been at the center of regulatory and consumer policy debate, since it can create potential conflicts of interest between the intermediary and the client, such as the incentive to recommend a product with higher commission rather than the objectively most suitable solution; frameworks such as the Insurance Distribution Directive (IDD) address this risk through stricter transparency and disclosure requirements, while net policies are offered as a complete alternative to commission-based remuneration.