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Fire & Property All Risk - Broker Commission

Commission Structure

Fixed Percentage Commission

Commission is paid as a fixed percentage of premium for each policy sold.

Payment Process: 1. Policy issued 2. Premium collected from customer 3. Commission calculated (Premium × Commission %) 4. Credit note issued to broker 5. Commission paid to broker

Commission Payment

When Commission Is Paid

Commission is paid after: - Policy is issued - Premium is collected from customer - Credit note is processed

Credit Note Process

For each policy sold: 1. Policy premium collected 2. Commission calculated (Premium × Fixed %) 3. Credit note generated for commission amount 4. Commission credited to broker account 5. Payment made per settlement terms

Example: - Sum insured: AED 2,000,000 - Premium: AED 3,000 - Commission rate: 15% - Commission: AED 450 - Credit note issued for AED 450

Commission on Cancellations

Short-Period Refund Method

When a policy is cancelled, commission is clawed back using short-period rates:

Period Active Premium Retained Commission Retained
Up to 1 month 25% 25%
1-3 months 50% 50%
3-6 months 75% 75%
6+ months 100% 100%

Debit Note Process

For cancelled policies: 1. Cancellation processed 2. Short-period refund calculated 3. Commission clawback calculated (Refund × Commission %) 4. Debit note issued to broker 5. Amount deducted from broker account

Example: - Original premium: AED 3,000 - Commission paid: AED 450 (15%) - Policy cancelled after 2 months - Short-period rate: 50% retained - Premium refunded: AED 1,500 - Commission clawback: AED 225 (debit note) - Broker keeps: AED 225

Commission on Endorsements

Additional Premium

When endorsement increases premium: - Additional commission on extra premium - Same commission percentage - Credit note for additional amount

Example: - Sum insured increased by AED 500,000 - Additional premium: AED 750 - Commission rate: 15% - Additional commission: AED 112.50 - Credit note issued

Return Premium

When endorsement decreases premium: - Commission clawed back on refund - Same commission percentage - Debit note for clawback

Example: - Sum insured decreased by AED 300,000 - Return premium: AED 450 - Commission rate: 15% - Commission clawback: AED 67.50 - Debit note issued

Add/Delete Locations

Adding Location: - Commission on additional location premium - Same percentage applied - Credit note issued

Deleting Location: - Commission clawed back on refund - Pro-rated for remaining period - Debit note issued

Pro-Rata Refund (Property Sold)

When Property Is Sold

If property is sold mid-term: - Premium refunded pro-rata - Commission clawed back proportionally - Debit note issued

Example: - Original premium: AED 5,000 - Commission paid: AED 750 (15%) - Property sold after 4 months - Days active: 120 days - Days remaining: 245 days - Pro-rata refund: AED 3,356 - Commission clawback: AED 503.40 - Broker retains: AED 246.60

Settlement Process

Regular Settlement

Commission settled based on: - Credit notes - Policies sold and endorsements - Debit notes - Cancellations and refunds - Net amount - Credits minus debits

Statement Period

Broker statements issued: - Weekly, bi-weekly, or monthly - Shows all credit notes - Shows all debit notes - Net balance payable

Commission Controls

Fixed Percentage Advantage

  • Same rate for all Fire and PAR policies
  • Simple calculation (Premium × %)
  • Transparent and consistent
  • No per-policy negotiations

Validation

System validates: - Policy is active - Premium collected - Commission correctly calculated - Refund clawbacks use short-period rates

Property-Specific Considerations

High-Value Properties

For properties with high sum insured: - Commission paid on full premium upfront - Higher clawback risk if cancelled early - Broker should ensure client commitment

Multi-Location Policies

For policies covering multiple locations: - Commission on total policy premium - Location additions earn additional commission - Location deletions result in clawback

Business Interruption Add-On

If BI coverage added: - Commission on BI premium - Same percentage as material damage - Separate credit note may be issued

Renewal Commission

Annual Renewals

For renewed policies: - Full commission on renewal premium - Treated as new policy sale - Credit note issued

No-Claims Renewals

If no-claims discount applied: - Commission on discounted premium - Not on original premium amount

Commission Examples

Example 1: Standard Villa Policy

  • Sum insured: AED 1,500,000
  • Premium: AED 900
  • Commission rate: 15%
  • Commission: AED 135
  • Credit note issued

Example 2: Commercial Building

  • Sum insured: AED 10,000,000
  • Premium: AED 15,750
  • Commission rate: 15%
  • Commission: AED 2,362.50
  • Credit note issued

Example 3: Cancellation After 2 Months

  • Original premium: AED 15,750
  • Original commission: AED 2,362.50
  • Short-period rate: 50% retained
  • Premium refund: AED 7,875
  • Commission clawback: AED 1,181.25
  • Debit note issued
  • Broker retains: AED 1,181.25

Example 4: Sum Insured Increase

  • Original premium: AED 3,000
  • Additional premium (increase): AED 750
  • Commission rate: 15%
  • Additional commission: AED 112.50
  • Credit note issued

Example 5: Property Sold After 8 Months

  • Original premium: AED 5,000
  • Original commission: AED 750
  • Time active: 243 days
  • Time remaining: 122 days
  • Pro-rata refund: AED 1,671
  • Commission clawback: AED 250.65
  • Debit note issued
  • Broker retains: AED 499.35

Example 6: Add Second Location

  • Existing policy premium: AED 2,000
  • New location premium: AED 1,500 (pro-rated)
  • Commission rate: 15%
  • Additional commission: AED 225
  • Credit note issued

Next Steps