The clauses were developed following recent revisions to the personal accident “K Form” and reflect evolving market conditions, including the rise in long-tail claims driven by Covid and chronic illnesses such as heart disease. Profit commissions are paid by the managing agent to the coverholder. Traditionally, profit commission clauses – commonly found in binding authority agreements – stipulate payment 12 months after contract expiry. However, this approach has proven challenging in the face of delayed claims, often requiring claw-back provisions that are time-consuming, costly and potentially damaging to business relationships.
To address these issues, the LMA’s technical underwriting team, alongside members of the LMA’s Personal Accident Committee and delegated authority colleagues, have developed model clauses that offer greater clarity, fairness and flexibility.
David Powell, Head of Technical Underwriting at the Lloyd’s Market Association, commented: “These new model clauses reduce the risk of claw-back payments, which can take years to sort out when a profit commission is paid too early. One clause establishes a single payment profit commission, payable after a suitable time period has elapsed, with clear claw-back provisions in the event of over-payment. The second clause provides a multi-payment option, allowing the coverholder to receive a portion of the profit commission early, with further payments at agreed dates in the future, subject to adjustments to reflect claims experience and overall profitability of the binder.”
Since 2015, the LMA has provided essential guidance to its members on effectively communicating insurance concepts to consumers. The new clauses follow last year’s launch of the LMA’s UK Consumer Wordings Guidance and align with the latest legislative requirements and industry standards, including the FCA’s Consumer Duty guidance. Additional model wordings will be rolled out throughout the year. The model profit commission clauses are now available on the Lloyd’s Wordings Repository.
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