What's Happening?
The Lloyd's Market Association (LMA) has introduced new model wordings for profit commission clauses in binding authority agreements. These revisions, published on August 5, 2025, were developed by the LMA's Personal Accident Committee in collaboration with the delegated authority community. The changes aim to address issues arising from traditional clauses that often lead to claw-back provisions due to delayed claims development. The new clauses offer two approaches: a single payment after a longer period with defined claw-back conditions, and a multistage payment structure allowing for early partial payments with future adjustments. These updates are a response to evolving market conditions, particularly the increase in long-tail claims driven by Covid-19 and chronic illnesses.
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Why It's Important?
The overhaul of profit commission clauses is significant for the insurance industry as it seeks to mitigate the financial and relational impacts of claw-back payments. By providing more flexible and clear payment structures, the LMA aims to enhance fairness and reduce the administrative burden associated with delayed claims. This is particularly crucial in the context of rising claims related to Covid-19 and chronic illnesses, which have complicated traditional profit commission arrangements. The changes could lead to more stable financial planning for managing agents and coverholders, potentially improving business relationships and operational efficiency.
What's Next?
Further updates to the clauses are anticipated later this year, reflecting ongoing adjustments to market conditions. Stakeholders in the insurance industry, including managing agents and coverholders, will likely need to adapt their agreements to align with the new model clauses. This may involve revising existing contracts and negotiating new terms to incorporate the updated payment structures. The industry will be watching closely to see how these changes impact the handling of long-tail claims and the overall financial health of involved parties.
Beyond the Headlines
The introduction of these new clauses highlights the broader trend of the insurance industry adapting to unprecedented challenges posed by global health crises. The focus on chronic illnesses and Covid-19 claims underscores the need for more resilient and adaptable financial mechanisms within the sector. This development may also prompt further innovations in insurance contract structures, potentially influencing global standards.
