Drafting the Commission Clause in an Insurer-Broker Agreement

An insurer-broker agreement is normally signed by someone in placement and filed by someone in compliance. The brokerage clause inside it often runs to three sentences: the broker will be remunerated at rates mutually agreed from time to time, payment will follow the insurer's normal cycle, and the arrangement may be terminated on thirty days' notice. Everything else is left to the credit note.

That drafting is the origin of nearly every commission dispute an Indian broking firm will have. When a rate moves mid-year, when the insurer nets a prior-year recovery against this quarter's statement, when a three-year package is cancelled in month nine, when the agreement ends while 4,000 policies are still in force, the question is identical: what does the contract say. Three sentences say nothing, so the answer defaults to whatever the insurer's accounts payable system already does.

Two changes make this worse to leave alone. Intermediary licences became perpetual on 5 February 2026 under the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, removing the periodic renewal that used to force a natural review of standing paperwork. An agreement executed in 2019 can now sit untouched indefinitely, its schedule pointing at a rate table nobody has seen in years. Separately, the draft IRDAI (Insurance Intermediaries) (Amendment) Regulations circulated in June 2026, still only a draft, would move intermediation revenue into a separate audited schedule filed with IRDAI. A revenue line heading toward regulator visibility should rest on wording that can be read out loud.

This post is about the words. It assumes the commercial question, what the firm should ask for and how it argues its case inside an insurer's grid, is settled elsewhere: that is the subject of the firm's own commission policy and its negotiating posture. Here the concern is narrower. Once the number is agreed, how is it written down so that it survives a change of relationship manager, a cancellation, and a termination.

The first drafting decision is architectural: does the rate sit in the body of the agreement, in an executed schedule, or outside the contract entirely by reference.

Rates in the operative clause are brittle: every movement requires a formal amendment, which means it never happens and the parties operate off an email nobody can find three years later. Workable agreements push rates into a Schedule of Remuneration, incorporated by a clause providing that brokerage is payable at the rates set out in Schedule II, as varied under a named variation clause.

The trap is the third architecture: incorporation by open reference. Wording such as at the rates specified in the Company's prevailing commission structure as applicable from time to time looks harmless and is not. It incorporates a document the insurer alone controls and can rewrite without telling you, so the broker has contracted for whatever the counterparty decides to pay. Under the IRDAI (Payment of Commission) Regulations, 2023, each insurer sets distribution rates through its own internal policy rather than under product-wise statutory caps, which makes the referenced document genuinely mutable and this drafting genuinely dangerous.

Three corrections do most of the work:

1. Attach the table. Schedule II should reproduce the actual rates by line of business, not point at a portal. If the insurer resists, annual re-execution of the schedule is the fallback.
2. Make variation prospective. The variation clause should provide that no change applies to any policy incepted or renewed before its effective date, and that the effective date is no earlier than a stated notice period, commonly thirty to sixty days, after written notice. Without this, a rate cut applied retrospectively to a quarter you have already placed is contractually permitted.
3. Fix the rate at inception, not at payment. State expressly that the rate applicable to a policy is the rate in the schedule on the date the risk incepts. Otherwise a policy placed in March and paid in May is exposed to an April revision.

Given Section 64VB of the Insurance Act, 1938, under which the insurer assumes no risk until premium is received, receipt is the commercially honest trigger and is where most Indian agreements land. The drafting point is to say so precisely rather than leave it implied: brokerage accrues on receipt by the insurer of the premium in respect of the policy, and is payable within a stated number of days of accrual. That separates two clocks the insurer's finance team habitually merges. Accrual creates the debt and starts limitation running under the Limitation Act, 1963. Payment is an administrative cycle, and should carry an outer limit expressed in days rather than by reference to a monthly run.

The sentence must also address partial receipt, because a real book contains instalment-paid policies where the trigger fires more than once. The clean approach is proportionality: brokerage accrues on each receipt, in the proportion the amount received bears to the annual premium. One sentence prevents a long argument, and the underlying premium-receipt mechanics deserve their own treatment.

Netting is where money quietly leaves. Insurers routinely deduct prior-period reversals, disputed items, and occasionally amounts owed by a different arm of the broking group. Whether they may do so is a contract question, and the default answer, absent drafting, is unhelpfully open.

The insurer's preferred clause is broad: the Company may at any time set off any amount due from the Broker under this or any other agreement against any amount payable to the Broker. That permits cross-agreement, cross-entity, cross-period deduction with no notice and no ceiling. It converts a disputed item into a self-executing recovery and reverses the burden, so the broker must sue to get its own money back rather than the insurer suing to recover it.

The negotiated position is narrower on four axes:

1. Scope. Limit set-off to amounts due under this agreement, and expressly exclude amounts owed by affiliates of the broker. Group companies with separate registrations should not be cross-collateralised by accident.
2. Liquidity. Restrict set-off to sums that are undisputed and ascertained. An item disputed in writing within a stated window should be excluded from netting until the dispute resolves.
3. Notice. Require line-item notice before deduction, identifying the policy, the amount and the reason, with a stated period to respond. A deduction appearing only as a net figure on a statement is undiscoverable at scale.
4. Ageing. Cap the look-back. A reversal traced to a policy incepted four years ago, surfacing now, is a reconciliation failure the broker cannot audit. Twelve to twenty-four months is a defensible outer limit and aligns with the period for which the firm realistically holds evidence.

Every policy that goes off risk early raises the same question, and the clause should answer it arithmetically rather than in principle.

Start with the trigger taxonomy, because the causes are not equivalent and should not carry identical consequences:

1. Cancellation at the insured's instance, mid-term, with pro-rata or short-period refund of premium.
2. Cancellation by the insurer, on notice, under the policy's own cancellation condition.
3. Refund endorsements reducing sum insured or deleting an item without ending the policy.
4. Failure of premium under Section 64VB, including a dishonoured instrument, where the risk arguably never attached.
5. Cancellation ab initio for misrepresentation or non-disclosure.

The drafting question in each case is the proportion of brokerage returnable. The defensible rule, and the one most agreements should adopt, is that brokerage returns in the same proportion as the premium is refunded. If the insured recovers 40 percent of premium, the broker returns 40 percent of brokerage. Silence produces the insurer position that full brokerage comes back on any cancellation, which is arithmetically indefensible and surprisingly common.

Termination clauses are drafted with attention and survival clauses are copied from a precedent, which is the wrong way round for a broker.

On the day an agreement terminates, the firm typically has thousands of policies in force with that insurer, some annual, some on instalments, some multi-year, many renewing after the termination date. Three entitlements are at stake and the clause should name each:

1. Brokerage already accrued and unpaid. This must survive, or the insurer can argue the payment obligation died with the agreement. The easy case, and still routinely left out.
2. Brokerage on premium not yet received at termination, principally on instalment-paid and multi-year policies placed before the end date. The contested case. The broker's position is that entitlement was earned by the placement and the instalments merely time the payment, so brokerage continues to run as they arrive. Say it expressly, because the default reading will not supply it.
3. Renewal brokerage after termination. The honest answer is usually none, unless the firm is reappointed on the renewal. Do not overreach; a clause claiming post-termination renewal brokerage will be struck out and will cost credibility on the first two points.

The clause should also handle run-off mechanics: continued access to the insurer's statements or portal for a stated period after termination so the firm can reconcile the tail, an obligation on the insurer to keep issuing statements until the last accrued item settles, and a final reconciliation with a deadline and a dispute window.

Warranties and the Section 41 hook

Insurers now routinely require the broker to warrant that it will not pass any part of its brokerage to the insured or to any person as an inducement to place or renew. This mirrors Section 41 of the Insurance Act, 1938, which prohibits rebating of commission or premium and carries a fine which may extend to INR 10 lakh under the 2015 amendment. Accept the warranty; it restates law you are already bound by, and refusing looks worse than signing. What to resist is the indemnity that often travels with it, drafted to make the broker indemnify the insurer against any penalty the insurer suffers for the broker's conduct, typically uncapped and with no requirement that the insurer defend the proceeding or consult the broker. Negotiate a cap, a conduct-of-claims provision, and a carve-out where the insurer's own act contributed.

Notice, variation and waiver

A notice clause naming a designated recipient is worth more than it looks: rate-change notices sent to a general inbox and never actioned are a recurring failure. Require notices affecting remuneration to go to a named role, and provide that a notice sent elsewhere is ineffective for that purpose. The variation clause should require writing signed by both parties, and an anti-waiver clause should stop past forbearance from creating a new normal.

Escalation and dispute resolution

A two-stage escalation, a named commercial contact within fifteen days and a defined senior forum within thirty, resolves most statement disputes without touching the arbitration clause. Below it, add the provision that matters commercially: undisputed amounts continue to be paid while a disputed item is escalated. Without that, a single contested line stalls a whole statement. Above it, an arbitration clause under the Arbitration and Conciliation Act, 1996 with a stated seat and a sole arbitrator is adequate. Check the seat: a Mumbai-seated clause in an agreement your regional office will enforce is a real cost.

One closing note. IRDAI signalled in July 2026 that it was preparing a consultation paper on distribution remuneration, expected by the end of that month and not published as at the date of this post; the ideas reported remain proposals. If any becomes rule, it will arrive through your schedule and your variation clause. Firms that already fix rates at inception, restrict retrospective variation, and provide for accrued entitlement to survive will absorb the change as paperwork.