How an insurance broker is paid is not a private matter between broker and insurer. It is a regulated disclosure. The Financial Conduct Authority sets out a layered regime under the Insurance Conduct of Business Sourcebook (ICOBS) that dictates what a broker must tell a customer about status, service, and remuneration — and when a customer can compel further detail. Consumer Duty (PRIN 2A) sits over the top, raising the bar for retail relationships. This entry walks through the framework and shows how it applies in practice.
Under ICOBS 4.4, a broker must, in good time before conclusion of a contract, tell the customer three things: its identity and address, that it is an insurance intermediary (its status), and the nature of its remuneration. The remuneration wording does not have to be a specific number; it has to be an honest description of the mechanism — commission paid by the insurer, a fee paid by the client, or a combination of the two. If the broker is acting on behalf of the insurer for certain functions (delegated authority, for example), that too must be surfaced.
This disclosure is mandatory. It is not triggered by a request; it is the floor. It typically lives in a terms of business agreement issued at engagement and repeated at renewal.
ICOBS 4.5 adds a specific right for commercial customers. Where a commercial customer requests it, the broker must promptly disclose the amount of any commission received in connection with the contract. "Commercial customer" here means a customer who is not a consumer — corporates, partnerships, most professional firms. The right is triggered by request, but the broker cannot obstruct or discourage the question. Refusing or deflecting when a firm number is available would sit poorly against ICOBS 2.5 (customers' best interests and fair treatment) and Consumer Duty for micro-enterprises within scope.
For retail customers, and for micro-enterprises brought inside the retail perimeter, PRIN 2A reframes disclosure as an outcome, not a checklist. The consumer understanding outcome requires communications that support informed decisions; the price and value outcome requires the customer to be able to assess whether what they pay — including intermediary remuneration — is reasonable for the benefit they receive. In practice that means proactive, plain-English explanation of how the broker earns, not disclosure only when asked.
Some brokers charge a client fee instead of, or in addition to, insurer commission. Fee schedules should be clear, in writing, and agreed before work begins. Where a fee sits alongside commission, both must be disclosed under ICOBS 4.4, and the total remuneration position must not be misleading. VAT treatment, pro-rata refunds on mid-term cancellation, and what the fee covers (placement only, or ongoing service) all sit in the terms of business.
Commission on general insurance business commonly falls in a 10 to 25 per cent range, varying by product line, insurer, and volume. The nature of the commission — paid by the insurer out of the premium the client pays — is disclosable under ICOBS 4.4. The quantum is disclosable to a commercial customer on request under ICOBS 4.5, and proactively to retail customers where Consumer Duty applies.
Profit-share, override, and volume-based arrangements with an insurer create a potential conflict between the broker's duty to the client and its own commercial interests. IDD Article 20 and the FCA's product oversight and distribution rules require these arrangements to be identified and managed. Where such an arrangement is material, additional disclosure is needed — a customer is entitled to understand whether the recommendation of a particular insurer carries an incentive beyond standard commission.
A workable rhythm is: status and remuneration nature disclosed in the terms of business at engagement; commission disclosed at renewal where the customer has asked, and proactively where Consumer Duty requires; and an annual reconciliation for larger clients showing what has been earned across the placement. Records are retained to evidence the disclosures made.
Worked example. A professional client — a mid-sized architectural practice — emails its broker and asks: "How are you paid on our PI programme?" Under ICOBS 4.4 the broker must already have disclosed the nature of its remuneration in the terms of business — say, commission from the insurer with no additional client fee. Because the practice is a commercial customer, ICOBS 4.5 is engaged the moment the client asks for the amount: the broker must promptly disclose the commission figure in pounds or as a percentage of premium. If the same question came from a sole-practitioner architect trading as an individual (a retail customer under the perimeter), Consumer Duty would push the broker further — the answer should be given proactively as part of the renewal pack, not held back until asked.
See also dual agency conflicts for insurance brokers and Consumer Duty (PRIN 2A) for insurance brokers. For sector context, the disclosure regime applies across professional indemnity placements including solicitors' PI, architects' PI, accountants' PI, and IFAs' PI.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.