Kelly Phillips, Senior Business Development Quality Manager, Simplybiz

Commission continues to be a hot topic for both our members and the FCA, with plenty of debate about which structure works best. The truth is, there is not a one-size-fitsall answer. Each model has its place, and each comes with its own pros and cons. Understanding the nuances of each is key for firms wanting to balance profitability with compliance and long-term sustainability.

COMMISSION IN PROTECTION IS COMPLEX, BUT UNDERSTANDING THE OPTIONS IS HALF THE BATTLE.

while two-year terms feel comfortable, four-year terms often deliver significantly higher income over time and potentially better customer outcomes.

The main commission structures in the protection space are fairly straightforward. Non-indemnity commission is paid on the drip, monthly, rather than as a lump sum. Two-year indemnity terms provide a lump sum upfront, with the caveat that if the policy cancels within the first two years, there is a clawback. Four-year indemnity terms operate the same way as two-year terms, but the risk period extends to the first four years, meaning clawbacks can occur during that longer period.

Many firms naturally gravitate towards the elusive two-year indemnity term. On paper, it is safer and simpler. It reduces length of financial liability, which is attractive for firms, particularly those in the early stages of their business. It limits the risk of clawbacks and offers a straightforward, but

The idea of an extended risk period can seem daunting, but it should not automatically rule out four-year terms. Rather than dismissing them outright, firms should take a careful look at historical cancellation data, particularly between months 25 and 48. If cancellations remain steady and predictable during this period, a four-year term can actually lead to more profitable business overall. In many cases, the additional commission outweighs the extended risk period, making it a compelling option.

From the provider perspective, the view shifts slightly. Nonindemnity models are increasingly attractive because they remove risk. By taking away the lump sum upfront, providers reduce the incentive for policy replacement based purely on commission. This model aligns behaviour with client needs rather than commission schedules. Many firms start off requiring indemnity- especially when they are new and cash flow or financial stability is tight- but over time, many look to transition towards non-indemnity.

Switching from indemnity to non-indemnity, however, is not always straightforward. Attempting to make the jump all at once can be tricky and, frankly, risky. A gradual approach is generally far more successful. Many firms start by moving

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