Tips & Traps: Premium Refunds
A number of complaints to the IBD relate to premium refunds, usually due to inadequate disclosure by the broker.
Should premium refunds be made net or gross of commission and fees?
There are no rules about whether premium refunds should be net or gross of refunds, but brokers should:
- Notify clients of your policy regarding refunding commissions in advance – you could include this in your FSG for clients and in your letter or engagement or insurance manual for wholesale clients. Notices are also often also provided in invoices to clients. If you don’t tell the client in advance, you may not be able to retain your commission or fees.
- At the time of refund, clearly explain the basis on which the refund has been made, how much has been refunded and why. The clearer the disclosure the less likely a dispute will arise.
Who should the money be refunded to?
If the policy has been premium funded, the refund will usually be payable to the premium funder (unless the funding contract provides otherwise). If so, it can be paid direct to the premium funder from the broker’s trust account.
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