A broker shows its commission is justified by setting total remuneration per product against the cost and value of the service it provides, and by testing outcomes for customers. PROD 4.3 requires distributors to make sure their remuneration does not stop a product delivering fair value. Since 9 December 2025 the review frequency is set by risk and must be recorded (PS25/21).
The FCA has made clear this is not a paperwork exercise. In its review of multi-occupancy buildings insurance it found that broker remuneration rose by nearly 40% between 2019 and 2022, that 16 brokers paid over £80 million of commission on to freeholders, managing agents and others, and that most could not show they consistently delivered fair value (FCA).
What counts as remuneration
| Source | Include in the assessment | Notes |
|---|---|---|
| Commission from insurers | Yes | Base and any additional commission |
| Broker fees charged to customers | Yes | Including mid-term adjustment and cancellation fees |
| Profit share and volume-based payments | Yes | ICOBS 4.4.2G names these as remuneration |
| Payments from premium finance providers | Yes | ICOBS 4.4.2G; see the premium finance section below |
| Add-on product commission | Yes | Assessed with the main product where sold together |
| Payments made on to third parties | Yes | Show what service, if any, the third party provides |
A five-step method
- Total remuneration per product. Add every source above, per policy and as a percentage of premium, for each product and channel.
- Cost to serve. Allocate staff time, systems, claims support and overheads to each product, using a stated method.
- Service provided. Record what the customer receives: advice, market access, claims support, mid-term changes. More service can justify more remuneration; none cannot.
- Outcomes data. Claims acceptance and decline rates, cancellation rates, complaints and renewal retention by product and customer group, including customers with characteristics of vulnerability.
- Conclusion and action. A recorded view on whether remuneration is consistent with fair value, approved at the right level, with actions where it is not.
Premium finance
The FCA's premium finance market study, published on 3 February 2026, found average APRs fell 4.1 percentage points from 2022, saving customers about £157 million a year. It did not introduce a price cap, but said it will act where firms fall short and that firms should consider whether their offerings need further changes to deliver fair value (FCA). Brokers who arrange finance should show the price of cover separately from the cost of finance (ICOBS 6.1.5R and 6.1.6G) and include any payment from the lender in the remuneration assessment (FCA).
Questions insurers now ask brokers
| Question | Evidence to hold |
|---|---|
| What is your total remuneration on this product, as a percentage of premium? | Remuneration analysis by product |
| What service do you provide for that remuneration? | Service description and cost-to-serve analysis |
| Do you share remuneration with third parties, and why? | Third-party agreements and service evidence |
| What outcomes data do you hold for our customers? | Claims, cancellations, complaints and retention MI |
| How often do you review this, and when did you last do so? | Review schedule with rationale and last review record |
A worked example
| Item | Product A: SME combined | Product B: tenants' contents |
|---|---|---|
| Commission as % of premium | 20% | 35% |
| Broker fee per policy | £50 | None |
| Premium finance commission | Yes, 3% of amount financed | No |
| Service provided | Advice, market search, claims advocacy, mid-term changes | Online sale, no advice, no claims support |
| Claims acceptance rate | 88% | 71% |
| Cancellation in first year | 6% | 22% |
| Conclusion | Remuneration supported by service and outcomes; keep under review | Remuneration high for the service given and outcomes weak; reduce commission or add service, and review in six months |
The figures are illustrative. The point is the method: the same five steps applied to every product, with a recorded conclusion and an action where the evidence does not support the remuneration.
Common weaknesses
- Remuneration assessed as a percentage only, with no view of the service provided or the outcomes.
- Premium finance income left out of the assessment.
- Payments to third parties, such as property managing agents, with no evidence of any service in return.
- A single firm-wide conclusion instead of one per product and channel.
- No record of the review frequency or why it was chosen.
Who should sign off
The conclusion for each product should be approved by the person accountable for product governance, and the summary should go to the board as part of the yearly review of customer outcomes. Where an insurer acts as lead manufacturer under PROD 4, the broker still owns its own remuneration assessment and should share the results when the lead firm asks.
Where this sits in the Duty
For business in Consumer Duty scope, remuneration findings should feed the board's yearly review of customer outcomes. For larger commercial customers, now outside the Duty and often outside PROD 4 (see the test), commission must still be disclosed on request under ICOBS 4.4.1R. Our fair value assessment guide covers the manufacturer side.
Frequently asked questions
Yes. The rules do not cap commission. A broker must be able to show that its total remuneration does not stop the product delivering fair value to customers.
Broker remuneration rose by nearly 40% between 2019 and 2022, 16 brokers paid over £80 million of commission to other parties, and most could not show they consistently delivered fair value.
Yes. ICOBS 4.4.2G includes payments from premium finance companies in the remuneration a broker should disclose to a commercial customer on request, and it belongs in the fair value assessment.
No. The FCA's final report of 3 February 2026 ruled out a price cap but said it will act where firms fall short of fair value.
There is no fixed interval since 9 December 2025. The frequency must be set by the risk of customer harm, recorded with a rationale and shared in the distribution chain on request.
References
- FCA: multi-occupancy buildings insurance broker remuneration review
- FCA: falling cost of premium finance, 3 February 2026
- FCA: general insurance brokers acting for commercial customers
- FCA PS25/21: simplifying the insurance rules
- FCA Handbook: PROD 4
About Regulatory Counsel
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This article is general information as at 27 October 2026 and is not legal advice.
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