The Commission Lens
Price & Value
Insurance manufacturers have known what they pay distributors for years. Few can show what proportion of premium reaches the customer in benefit, what proportion reaches each link in the chain, and whether each link's share is justified by what it does. TR24/2 found fewer than five manufacturers in the FCA's sample could provide an appropriate rationale for distributor remuneration. The GAP intervention exposed the consequence: products where 6% of premium reached customers in claims and up to 70% reached commission. The fair value assessment that does not see the chain is not assessing the price the customer pays.
The structural move is to operationalise the lens: contractual rights to remuneration data at every link, attribution of every form of remuneration to a named channel and segment, and threshold logic that escalates when remuneration crosses lines the firm has committed to in advance. Three disciplines:
Visibility down the chainThe manufacturer has contractual rights to remuneration data at every link of the distribution chain — commission, profit share, override, marketing allowance, panel fee, premium-finance commission, sub-distribution flows — and the data is delivered, reconciled, and attributed to channel and segment in a cadence that supports the FVA cycle and continuous monitoring. TR24/2 was explicit: fewer than five manufacturers in the sample could justify remuneration in the round, and the gap was as often a data gap as a judgement gap. PROD 4.3 mirrors the obligation on the distributor. The design test: can the firm reconstruct, for any policy in any channel, every pound flowing to every party in the chain — and if not, which contractual right or data feed is the gap?
Attribution to value deliveredEvery form of remuneration is attributed to a specific service, capability, or risk component the recipient bears, and tested against the marginal value that adds for the customer — not the manufacturer. Initial commission against acquisition cost; profit share against distribution-quality outcomes; override against panel management; marketing allowance against documented activity; premium-finance commission against funding cost and bad-debt economics. Where remuneration cannot be attributed in those terms, the framework treats that as a fair value question, not a commercial one. Restricted-panel uplift requires evidence of an offsetting service or quality benefit; loaded premiums require an objective and reasonable basis; market benchmarking is corroborative, not exculpatory. The design test: for each remuneration line in each channel, is the firm's stated rationale evidenced by activity, outcome, or risk data — and would it survive challenge from a reviewer who has not negotiated the contract?
Threshold logic with consequenceThe framework specifies, in advance, the conditions under which remuneration becomes inconsistent with fair value — pound-value commission cap to manage percentage-of-premium auto-inflation (TR24/2's named control), tolerance ranges around acceptable claims-to-commission ratios, persistency thresholds linked to clawback economics, premium-finance APR or double-dip thresholds, post-clawback lapse spike thresholds. When a threshold is crossed, named owners must escalate to a defined governance forum within a defined timeframe, and the action options must include renegotiation, channel removal, product redesign, or withdrawal — not only continued monitoring. The design test: in the firm's history, has a remuneration threshold breach in this framework triggered a renegotiation, a channel exit, or a product change — and if not, what evidence is there that it could?
The firm can reconstruct, for any policy and any channel, every pound of remuneration flowing through the distribution chain — initial commission, override, profit share, marketing allowance, panel fee, premium-finance commission, sub-distribution — with attribution to policy and segment, on a cadence that supports the FVA cycle.
Where commission is set as a percentage of premium, the firm has a pound-value cap, tolerance range, or other named control that manages the risk of remuneration auto-inflating with premium rises (the TR24/2 explicit control).
FVAs evidence, for each remuneration line in each material channel, the activity, outcome, or risk basis on which the level is justified — not benchmarking against market rate alone — and the FVA names the channels for which the assessment cannot be evidenced.
Distribution-quality MI integrates remuneration data with persistency, lapse, complaint, and claims indicators at intermediary level, with documented thresholds that have, within the last three years, triggered a renegotiation, channel exit, or product change.
A motor insurer rebuilt its distribution oversight after the GAP intervention exposed the gap in its pre-existing FVA. The previous process had assessed commission at portfolio level and as a percentage of premium, with no pound-value control and no separate view of sub-distribution. The redesigned operating model added contractual rights in every distribution agreement to receive monthly commission, override, profit-share, and panel-fee data attributed to policy, channel, and dealer; a single reconciliation feed combining manufacturer, MGA, and premium-finance settlement data; and a control matrix specifying, for each product, a pound-value commission cap, the claims-to-commission ratio tolerance, and the post-cancellation persistency threshold. Two add-ons failed the rebuilt framework on commission-cap grounds despite passing the previous percentage-only test: one was withdrawn, the other had its commission renegotiated and a sub-distribution channel removed. The board minutes documented the threshold logic, the data feeds supporting it, and the action consequence — providing the evidence of robust challenge that TR24/2 had identified as a sector-wide weakness. The framework had not changed what fair value meant; it had built the lens that allowed the answer to be 'no'.
A pure protection manufacturer responded to MS24/1 by redesigning its Distribution Quality Management framework to integrate the indicators MS24/1 surfaced — loaded-premium prevalence by intermediary, restricted-panel commission uplift relative to whole-of-market, post-clawback lapse spikes, early-lapse rates by channel — into a single intermediary-level value MI. Each intermediary above a threshold on any indicator triggered a documented review with three outcomes: evidenced justification (e.g. service uplift accompanying restricted-panel commission), remediation (clawback period extension from two to four years, commission restructure, equalisation across panel members), or termination. Within twelve months, two intermediary networks were exited on lapse-pattern evidence consistent with churn rather than need, and four had loaded-premium arrangements renegotiated where the additional commission was not matched by activity or service. The previously written-off clawback debt running through the segment was reduced as the lapse pattern shifted. The firm now had data the previous framework had not seen, and a discipline that produced action where MS24/1 had warned the sector its frameworks would otherwise just describe the problem.
- Common failure modes
The most common failure mode is the percentage-of-premium commission with no pound-value cap, which TR24/2 called out specifically: as premiums rise, commission rises mechanically, and the firm has no control over the point at which absolute pound value becomes inconsistent with fair value. A second is the unbenchmarked rationale: 'this is the market rate' is not a fair value justification, and the FCA stated that benchmarking alone does not establish fair value where the wider market pays a level not reflecting distributor activity. A third is the partial chain — the manufacturer sees the broker commission, not the sub-distribution layer or panel fee, and signs off the FVA on the half it can see. A fourth is profit share, override, and marketing allowance treated as commercial-confidential rather than as remuneration: TR24/2 found firms omitting profit commission from FVAs, which is a misclassification not a confidentiality issue. A fifth is the premium-finance double-count: a higher underlying premium for monthly-paying customers without objective basis plus the credit charge, both flowing through commission economics — flagged in MS24/2.2 as requiring firm-level evidence. A sixth, central to pure protection, is treating loaded-premium and restricted-panel arrangements as commercially neutral: 26% of intermediated sales involve loaded premiums with commission rates approximately 25% higher, and restricted panels carry higher rates than whole-of-market — neither automatically harmful, both requiring firm-specific evidence.