just 10 % of business to a non-indemnity model, then slowly increase this over time as confidence grows. This method allows firms to benefit from higher, more stable income, while reducing the financial risk associated with clawbacks. Non-indemnity models, when implemented carefully, offer a win-win: better profitability and peace of mind.
One of the main reasons providers are moving away from two-year indemnity terms relates to behaviour. While not true across the board, shorter-term indemnity arrangements can sometimes encourage undesirable actions- such as replacing policies in line with clawback periods rather than client need. This can create tension between compliance and business objectives, and in some cases, attract regulatory attention. As a result, certain providers no longer offer the two-year option to firms that are newly setting up agencies. Some are even considering encouraging existing firms on two-year terms to switch to four-year models. This suggests a broader trend: the industry is slowly moving away from short-term indemnity, driven more by market behaviour and risk considerations than by regulation alone.
It is important to stress that this change will not happen overnight. The FCA’ s focus on commission structures will continue to shine a light on the issue, but providers are generally deliberate in their approach, giving firms time to adapt. For firms, being aware of this trend is key- they can plan strategically rather than being caught off guard.
So, which commission structure is the“ best”? Ultimately, it depends on the firm. Two-year indemnity terms offer reduced liability, which suits firms with limited resources or tighter risk tolerance, but they come with lower earnings. Four-year terms, meanwhile, often balance higher revenue with manageable risk, provided cancellations remain predictable. Similarly, a gradual move to non-indemnity can be attractive for firms looking to increase profitability while mitigating financial exposure.
In short, no single structure is perfect for every firm. The right choice comes down to careful assessment of client retention patterns, historical cancellations, risk appetite, and business model. By analysing data, understanding provider options, and planning transitions thoughtfully, firms can optimise their commission structure for both profitability and longterm sustainability.
Commission in protection is complex, but understanding the options is half the battle. While two-year indemnity offers reduced liability, four-year indemnity and non-indemnity models can bring higher income and lower financial risk. The key is knowing your firm, analysing the numbers, and making a strategic, informed choice. With the FCA watching closely, firms that get this right will not just maximise revenue- they will strengthen their long-term resilience.
Simplybiz is always here to support you, so if you want to know more about any of the topics discussed in this article, then please contact our Protection team at Protection @ Simplybiz. co. uk.
| PROTECTION ADVISER | AUTUMN 2025 | 29