Sector
Insurance brokers
An insurance broker's most valuable asset is usually its book: the client relationships and the commission they keep earning as policies renew. Most lenders don't know how to read that book, or the two things that sit alongside it on the bank statement: commission that can be clawed back, and premium money that isn't the broker's at all.
How money moves
Three kinds of money, only some of it the broker's
A broker's bank account can hold earned commission, commission that may still have to be repaid, and premiums collected on behalf of clients or insurers, all at once. They behave very differently, and a lender needs to see them separately.
General insurance commissionIncome
- Policy placed or renewed
- Commission earned for that policy year
- Earned again only if the client renews
Life and protection on indemnity termsIncome, repayable
- Policy sold
- Initial commission paid largely upfront
- Part repayable if the policy lapses within the clawback period
Premium moneyNot the broker's
- Premium collected from the client
- Held as client money, or as the insurer's agent
- Passed to the insurer
The broker's own cash position is what's left once client money is set aside and any commission that could still be clawed back is allowed for.
On indemnity terms, HMRC's own description is that the agent receives a percentage of the commission upfront, typically 50% or 75%, on the assumption the policyholder keeps paying for a period of usually two to four years, and part becomes repayable if the policy lapses within that period (HMRC Business Income Manual BIM40680).
Where the sector gets misread
What a generalist lender sees, and what's actually happening
A healthy cash balance
Premiums a broker receives in connection with insurance distribution are client money under the FCA's CASS 5 rules, or held as the insurer's agent under a risk transfer agreement. Either way, it belongs to clients or insurers, not to the broker.
Upfront commission as earned income
On indemnity terms, part of it can still be repaid if policies lapse early, so a strong year of new protection business can carry a liability behind it.
Commission as ordinary recurring revenue
Renewal commission only recurs if clients stay on cover, so the book's value depends on retention, not on last year's total.
The measure that matters
Persistency, not commission booked
A book with high renewal rates and low early lapse is worth more, and is more financeable, than the same headline commission earned on a book with high churn. The useful questions are renewal rates, lapse history inside any clawback period, and how much of the commission line is on indemnity terms.
Those numbers rarely appear in statutory accounts, which is why a lender reading the accounts alone tends to value the book too high or too low.
Where finance fits
Sized against the book, with client money left out of the picture
A facility can fund growth against a book that holds its clients. It can't borrow against premium money that belongs to clients or insurers.
There usually isn't a conventional customer invoice behind broker commission, so standard invoice finance is rarely the right starting point.
Sources
Where these points come from
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Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, with 15+ years across mortgages, commercial finance and fintech lending.
Last updated:
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