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How to Structure Broker Fees in Short-Term Insurance

Cedric Baker Effendi outlines how short-term insurance brokers can structure compliant, competitive fee models. With rising FSCA scrutiny, brokers must distinguish fees from commission, document value-added services and ensure full transparency to protect clients and strengthen their businesses.
Written by
Cedric Baker Effendi
Published on
December 3, 2025
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Broker fees in short-term insurance are a critical yet often misunderstood aspect of financial services. Advisors must navigate a regulatory landscape that demands transparency while also ensuring their businesses remain profitable. Striking the right balance between compliance and competitiveness is essential, especially as the Financial Sector Conduct Authority (FSCA) increases its scrutiny on broker fees.

For short-term insurance brokers, the challenge lies in structuring fees that are fair, justifiable and compliant with regulations while maintaining strong client relationships. This article explores best practices for charging broker fees, the distinction between commissions and fees and how brokers can demonstrate value to clients.

Understanding broker fees in a compliance context

One of the fundamental compliance requirements for broker fees in short-term insurance is transparency. Regulatory changes in recent years have introduced clearer rules to ensure that policyholders are treated fairly and are fully informed of any additional charges.

When Section 8(5) of the Short-term Insurance Act was repealed on 1 January 2018, insurers had until 31 December that year to stop facilitating broker fees without a written agreement. Today, such facilitation is governed by Rule 12.4.1 of the Short-term Insurance Policyholder Protection Rules (PPRs), which places strict conditions on when and how insurers may deduct and pay broker fees.

Under these rules:

  • The fee must be reasonable and commensurate with the service provided.  
  • It must be explicitly agreed to in writing by the policyholder.
  • The fee must relate to a specific, actual service provided to the policyholder and must not constitute an intermediary service (i.e., services typically covered by commission).

There must be no duplication of remuneration – a broker cannot charge a fee for a service that is already being remunerated through commission or another form of payment from the insurer. Brokers must ensure that any additional fees they charge are for services that go beyond policy placement. These services must be clearly outlined and accepted by the client to comply with regulatory expectations and promote fair treatment of customers.

Broker fees vs. commission: Key differences

Many brokers are unsure of how to differentiate their fees from commission-based remuneration. Understanding this distinction is key to ensuring compliance.

  • Commission: Paid by the insurer for rendering services as an intermediary. The maximum commission rate is regulated and calculated based on the policy premium and class of policy. For example, commission for motor policies is capped at 12.5%. It is essential to carefully assess whether your services might be classified as intermediary services because the regulators often interpret this definition broadly.
  • Broker fee: A separate fee charged to the client for additional services that fall outside of intermediary, outsource and binder functions. These services must be clearly defined and justifiable.

If a broker charges fees beyond commission, the regulator expects them to provide, and provide proof of, these additional services. For example, if a broker charges a policyholder a monthly fee for “administrative support” but does not provide any documented or tangible services beyond what is already covered by commission, or if there is an additional outsource arrangement with the insurer, this could be flagged as non-compliant.

Demonstrating value: Why should clients pay broker fees?

Beyond compliance, brokers need to justify their fees in a way that clients understand and appreciate. Value-based fees ensures that clients see the benefit of additional services, rather than simply viewing broker fees as an extra cost.

Examples of services that justify a broker fee include:

  • Risk profiling: Helping clients assess their risk exposure outside of financial planning and structuring appropriate coverage solutions.
  • Insurance strategy meetings: Providing in-depth consultations on insurance planning beyond policy placement.
  • Self-insurance management: Managing deductible structures and claims floats for clients.
  • Value-added services: Facilitating additional services such as risk mitigation strategies, fraud prevention advice and business continuity planning.

By clearly communicating additional broker services, brokers can reinforce the value of their expertise and justify their fee structures.  

“Striking the right balance between compliance and competitiveness is essential.”

Cedric Baker Effendi
Masthead Senior Practice Management Consultant

Key questions brokers should ask themselves about fees

Before structuring broker fees, FSPs should take a step back and evaluate whether their approach is both compliant and client focused. A structured assessment should address the following:

  • Are all additional services – beyond intermediary functions, outsource and binder services – clearly defined and documented?
  • Do your fees reflect the actual value of those services?
  • Are fees clearly disclosed, justified and agreed to in writing by clients?
  • Do you have a reliable system for recording fee agreements and the services provided?
  • Are your fees benchmarked regularly to remain competitive without being excessive?

To support this assessment, brokers should also ensure they have:

  • Well-documented internal policies outlining how fees are calculated, justified and communicated.
  • Processes for regularly reviewing and updating fee models to remain aligned with regulatory expectations and market norms.
  • Comprehensive records of client fee agreements, as insurers may request signed consent before processing broker fees.
  • Brokers must be able to demonstrate and provide documented evidence of service rendered, should the regulator request verification.

By taking a deliberate and well-documented approach, brokers can ensure their fee structures meet compliance requirements while reinforcing trust and transparency with clients.

Transparent fee disclosure: Best practices

To maintain compliance and build trust, brokers must disclose fees transparently. A well-structured fee agreement should include:

  • The FSP’s name and regulatory registration number.
  • The client’s name and confirmation of their agreement to the fee structure.
  • A statement that the FSP has been appointed to provide services related to short-term insurance policies.
  • An acknowledgment that the policyholder understands the FSP will earn commission for rendering intermediary services and, if applicable, outsource or binder fees.
  • A declaration confirming that the additional fees do not relate to services already remunerated through commission or other fees.
  • A clear separation between commission earned and the additional services covered by the fee.
  • Explicit written consent from the client to pay the additional fees.
  • A cancellation clause that allows either party to terminate the agreement, if necessary.

Proper disclosure ensures that clients fully understand what they are paying for, reducing the likelihood of disputes or regulatory issues.

Finding the right balance

Brokers in the short-term insurance industry must strike a careful balance between compliance and competitiveness. By ensuring transparent fee structures, demonstrating the value of their services and proactively managing compliance risks, brokers can create sustainable business models that benefit both their clients and their firms.

By adopting a proactive approach, brokers can remain competitive while meeting their compliance obligations – ensuring long-term success in the short-term insurance market.

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