Context
The LMA has published two new model profit commission clauses suitable for use on binding authority agreements across all lines of business. These updates have been produced by the LMA’s Personal Accident Committee and discussed with the delegated authority community.
Key points to note and next actions
- 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.
- 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.