What Is Commission?
Commission is the fee paid to a broker or intermediary for selling and servicing an insurance policy. It is built into your premium — you do not pay it separately, but it is a component of the total cost.
The Two Models
As-and-When Commission
The broker receives a percentage of each premium payment as it is collected. If you pay R200 per month and the commission rate is 20%, the broker receives R40 per month for as long as the policy remains active.
Upfront Commission
The broker receives a lump sum when the policy is sold, typically calculated as a multiple of the annual premium. This model gives the broker immediate income but creates a risk: if the policy lapses early, the insurer may claw back the commission.
How Commission Affects You
Commission does not increase your premium directly — it is already factored into the rate structure. However, it does create an incentive for the broker to sell. The FAIS Act requires that commission arrangements be disclosed to you, so you know how your broker is remunerated.
Disclosure Requirements
Under FAIS, your broker must disclose:
- The fact that they receive commission
- Whether the commission is as-and-when or upfront
- The approximate amount or percentage
- Any other financial interest in the sale
If your broker has not disclosed this information, you have the right to ask, and they are legally obliged to provide it.
Commission and Policy Lapsing
One unintended consequence of upfront commission is that it can reduce the broker's incentive to service the policy after the sale. If the broker has already received their full commission, they may not follow up on missed premiums or beneficiary updates. This is one reason why the industry is moving towards as-and-when commission models for certain product categories.
Contributed by Socinga Africa Holdings (FSP 46620). This is educational content only and not financial advice.