A Remuneration Governance Framework for Broking Firm Boards: Conflict Policy, Placement Committees, and Incentive Design That Survives Scrutiny

Until 2023, a broking firm's remuneration exposures were bounded by product-wise commission caps: whatever the sales team did, the rates themselves were regulated. The IRDAI (Payment of Commission) Regulations, 2023 removed those caps and moved commission-setting to each insurer's board-approved policy within the expenses-of-management envelope, and the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 fixed that envelope at roughly 30 percent of gross written premium for general insurers and 35 percent for standalone health insurers. The practical consequence for brokers is rate dispersion: two insurers can lawfully pay materially different commission on the same risk, which means every placement recommendation now carries a live conflict of interest that used to be regulated away.

The supervisory response is assembling in stages. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, in force from 5 February 2026, restored IRDAI's statutory power to cap distributor commissions. The draft IRDAI (Insurance Intermediaries) (Amendment) Regulations, 2026 (June 2026, still a draft) would require audited disclosure of intermediation revenue in a separate schedule, filing with IRDAI by 30 September each year, publication on the broker's website, and stricter disclosure above INR 10 crore of commission income. Press reporting in early July 2026 indicates a commission-rules overhaul is being prepared to curb mis-selling, with staggered trail commissions, effort-based remuneration, and product-wise caps under discussion and a consultation paper expected around end-July 2026.

A board that waits for the final rules will govern by remediation. The framework below can be adopted now, works under current law, and positions the firm for whichever version of the overhaul is eventually notified. It has four components: a conflict-of-interest policy, a placement committee, incentive design standards, and a documentation trail.

Most broking firms have a conflict-of-interest policy on paper, usually adapted from the code of conduct in the IRDAI (Insurance Brokers) Regulations, 2018. Few have one that changes behaviour. The difference lies in specificity. A board-approved policy fit for the post-2023 commission environment should state, in operational language:

• The recommendation standard. Placement recommendations are made on coverage, security, price, and service, and commission differentials between insurers must not determine the recommendation. State it as a testable rule, not an aspiration.
• Mandatory differential disclosure. Where the recommended insurer pays materially higher commission than a quoted alternative (the policy should define materiality, for example more than 2 percentage points of premium), the differential and the non-commission rationale must be recorded in the placement file and disclosed to the client.
• Treatment of portfolio-level income. Reward or additional remuneration arrangements with insurers must be inventoried centrally, approved by the principal officer, and reported to the board twice a year, because these arrangements create firm-level bias that no individual placement file will reveal.
• Prohibited structures. Informal rebates (prohibited under Section 41 of the Insurance Act, 1938), remuneration routed through related parties, and any arrangement whose economics depend on steering volume to a single insurer without documented client benefit.
• Escalation and breach handling. Named owner (usually the compliance head), defined timelines, and consequences that apply to producers as well as juniors.

The board's role is not to write this document but to approve it, receive breach reporting against it, and refresh it when the consultation paper lands. An annual board minute recording review of the policy, breach statistics, and portfolio-income inventory is the single cheapest piece of evidence a firm can hold when IRDAI inspection or a client dispute arrives.

The placement committee is the mechanism that converts the conflict policy from words into decisions. Its purpose is simple: on accounts large enough to matter, no single producer decides where the business goes.

A workable design for a mid-size firm (INR 25 to 150 crore revenue):

1. Threshold. Committee review for any placement above a defined trigger, commonly INR 50 lakh of premium on a single line or INR 1 crore across a client programme, plus any placement where the recommended insurer's commission exceeds quoted alternatives by the materiality margin, regardless of size.
2. Composition. Three to five members: the principal officer or a senior placement head as chair, the compliance head, and a senior broker not involved in the account. The producing broker presents but does not vote.
3. Inputs. The quote comparison with per-insurer commission rates shown, the coverage and security analysis, the client's stated priorities, and any fee arrangement on the account.
4. Output. A short minute recording the recommendation, the commission on each quote, and the rationale where the higher-paying insurer wins. Ten lines is enough; the discipline is in the existence of the record, not its length.

The committee earns its cost twice over. First, it is the firm's answer to the question every mis-selling inquiry asks: who decided, on what information, and with what incentive. Second, it surfaces pattern risk that account-level review misses, such as one branch placing 80 percent of its property book with the insurer that runs the richest reward arrangement.

IRDAI's reported concern in the July 2026 coverage is that upfront commission, which can reach around 40 percent on some life and health products, rewards the sale rather than the service, and the remedies under discussion (trail structures spread over the policy life, effort-based remuneration weighted toward advisory, documentation, and claims servicing) point directly at how distributors pay their own people. A broking firm whose internal incentives replicate the upfront-and-volume pattern will be on the wrong side of that logic whatever the final rules say.

Four design standards make an incentive plan defensible:

• Pay on revenue quality, not just production. Weight incentives toward persistency and renewal retention, not first-year premium alone. A producer whose book renews at 90 percent is worth more than one who writes the same volume with 60 percent retention, and the plan should say so arithmetically.
• No product-specific spiffs on client-facing staff. Contest-style incentives tied to a specific insurer or product are the cleanest mis-selling evidence a regulator can find in an inspection. If an insurer funds a campaign, the funding belongs in the firm's portfolio-income inventory, not in an individual's payout formula.
• Defer a slice on long-tail business. For multi-year or savings-linked placements, hold back 20 to 30 percent of the producer's incentive and release it against year-two persistency and the absence of upheld grievances. This mirrors the trail logic under discussion and protects the firm from paying out on business that lapses or turns into complaints.
• Include conduct gates. Documented suitability, complete placement files, and clean grievance records as preconditions for incentive payment, with clawback language for established mis-selling.

The board should approve the incentive plan annually and see a short back-test: payouts against subsequent persistency, grievance, and claims-experience data. If the top decile of incentive earners also produces the worst persistency, the plan is manufacturing the firm's future regulatory problem, and the board is the only body positioned to stop it.

Governance that is not written down does not exist for supervisory purposes. The documentation architecture has three layers, and each answers a different examiner question.

The placement file answers "was this client treated fairly." For every commercial placement it should hold the client mandate or appointment letter, the quote slip and comparison with commission rates, the recommendation note, the client's instruction, and the disclosure given. For committee-reviewed accounts, the minute joins the file. Target state: a file an examiner can read end-to-end without asking anyone a question.

The remuneration register answers "what does this firm earn and from whom." It records, by insurer and by category, base brokerage, reward and additional remuneration arrangements with their triggers, fees invoiced to clients, and any other income from insurers. This register is precisely what the draft 2026 amendment regulations would force into an audited schedule; firms above the proposed INR 10 crore commission-income threshold should assume line-item scrutiny. Building the register now, reconciled monthly to insurer statements and to the ledger, turns a future statutory exercise into a report run.

The governance record answers "did anyone senior look." Board and committee minutes, the annual conflict-policy review, incentive-plan approvals with back-tests, and breach reports with dispositions.

Retention discipline matters as much as creation: align with the broker regulations' record-keeping expectations and keep placement files for the policy period plus the limitation window, in practice at least seven years for commercial business. A firm that can produce any placement file within a day is a different supervisory proposition from one that needs three weeks and an apology.

A framework of this shape does not require new headcount in most mid-size firms; it requires sequencing. A realistic plan for the two quarters following July 2026:

Quarter one. Draft and board-approve the conflict-of-interest policy. Stand up the placement committee with the premium threshold set deliberately high (say INR 2 crore programmes) so the process beds in on ten to fifteen cases before the threshold drops to its intended level. Begin the remuneration register with the top ten insurer relationships, which will typically cover more than 80 percent of income.

Quarter two. Lower the committee threshold to target. Complete the register across all insurer relationships and reconcile it to the FY2025-26 audited financials as a dry run for the disclosure schedule proposed in the draft 2026 regulations. Rebuild the incentive plan for the next fiscal year against the four design standards, including the deferral and conduct gates. Run the first board review with breach statistics and the incentive back-test.

Two failure modes recur in firms that attempt this. The first is treating the framework as a compliance document set rather than a decision process: policies get approved, the committee never meets, and the first inspection finds the gap immediately. The second is over-engineering: a 40-page conflict policy and a committee that reviews every scooter policy will collapse under its own weight within a quarter. The test for every element is whether it changes a real decision on a real account.

Assume, as a planning scenario, that some combination of the discussed measures is eventually notified: trail-style commission on long-duration products, effort-based remuneration expectations, tighter disclosure, and product- or tenure-wise caps under the statutory power restored by the 2025 Act. Map each against the framework and the read-across is direct.

Trail commission changes revenue timing, and the firm with a remuneration register and persistency-weighted incentives already models income on an earned-over-time basis; the firm without them faces a cash-flow surprise and a repricing of its producer contracts in the same year. Effort-based remuneration rewards documented advisory, documentation, and claims servicing, and the placement file plus stewardship records are exactly that documentation. Disclosure schedules under the draft 2026 regulations are a report from the remuneration register. Caps, if they come, compress margins, and the board that has seen incentive back-tests and portfolio-income inventories knows which lines and branches stop making sense at which rate levels before the notification forces the analysis overnight.

There is also a commercial dividend. Corporate clients and their procurement teams are moving toward broker selection criteria that score governance: conflict policies, placement committees, and disclosure practice increasingly appear in RFP questionnaires from large buyers. The same framework that answers IRDAI answers the RFP.

The boards that move in 2026 are not predicting the final rules; they are removing the dependence on prediction. Every component above is justified under the regulations already in force, and none needs to be unwound under any plausible version of the overhaul.