UK Commissions Remain Uncapped – What Can Australia Learn?

The contrast between the UK and Australia’s approach to life insurance advice is revealing. Both regulators are concerned with consumer outcomes and the potential conflicts created by remuneration. But the difference lies in how they approach the problem.

The UK Financial Conduct Authority (FCA) has recently demonstrated a regulatory model that starts with evidence, consultation and engagement with industry before determining whether regulatory intervention is necessary. Australia, by contrast, has taken a more interventionist approach to life insurance remuneration, ultimately resulting in legislated commission limits under the Life Insurance Framework.

The difference matters—not simply for advisers and insurers, but for consumers and the availability of advice.

The FCA: investigate first, regulate where necessary

The FCA’s recently completed Pure Protection Market Study provides a useful case study in collaborative regulation. The FCA began by asking whether competition in the distribution of protection products was working effectively and whether commission structures could be producing poor consumer outcomes.

Importantly, it did not begin with a predetermined solution.

Before launching the study, the FCA sought feedback from industry and stakeholders on its proposed terms of reference. During the study it gathered extensive market data, engaged with insurers and intermediaries, and examined both consumer outcomes and the operation of commission arrangements.

The final findings are particularly interesting. The FCA concluded that competition generally delivers good outcomes for existing protection customers, with a wide range of products available and high claims acceptance rates. Its principal concern was not that commission itself was inherently inappropriate, but that too many consumers—58%—do not hold protection products and may not even have considered their protection needs.

That led to a different regulatory response: rather than introducing broad new regulation, the FCA has proposed a package of FCA, industry and stakeholder-led measures to improve awareness, access and the sales process, using existing regulatory frameworks. It is now engaging with industry to develop and implement those measures.

That is a fundamentally different starting point from assuming that the existence of commission necessarily requires a regulatory cap.

Commission remains a legitimate part of the UK protection market

Perhaps the most striking difference for Australian observers is that there is no equivalent statutory cap on commission for UK pure protection products.

The FCA’s own analysis of 2024 data shows median initial commission rates of around 220% of the annual premium for term assurance, 210–221% for critical illness and 229% for income protection. These figures can appear high when viewed simply as a percentage of the first year’s premium, but the FCA recognises that protection policies are typically long-term contracts, often lasting decades. Across the lifetime of policies in its sample, commission represented between 20% and 34% of projected premiums for the products analysed.

…commission can exist without a statutory commission cap, provided the broader regulatory framework is designed to manage conflict

The UK therefore demonstrates that commission can exist without a statutory commission cap, provided the broader regulatory framework is designed to manage conflicts, ensure fair value and protect consumers.

This does not mean the FCA is laissez-faire. Quite the opposite. It is actively examining commission structures, product value, switching incentives and whether premiums may be increased to fund higher intermediary remuneration.

But its approach is to understand the market first, identify the specific problem and then work with the industry on proportionate solutions.

Australia: from concern to prescription

Australia ultimately took a different path.

The Life Insurance Framework reforms introduced statutory limits on life insurance commissions, with upfront commissions ultimately capped at 60% of premium and ongoing commissions at 20%, alongside significant clawback requirements. ASIC explicitly described these measures as intended to reduce incentives for inappropriate advice.

The result is familiar to the Australian advice industry: commission remuneration became tightly prescribed rather than being primarily a matter for commercial negotiation between insurers and advisers within an outcomes-based regulatory framework.

The important issue …is whether prescribing the remuneration model is the most effective way of achieving good consumer outcomes.

The important issue is not whether Australia or the UK has a greater concern for consumers. Both do. The question is whether prescribing the remuneration model is the most effective way of achieving good consumer outcomes.

The UK experience provides an alternative proposition: regulators can challenge the industry, scrutinise remuneration and intervene where evidence demonstrates consumer harm—without automatically imposing a cap on the commercial relationship between insurers and intermediaries.

Regulation should enable, not simply constrain

There is a broader lesson here for financial services regulation.

Protection insurance is an area where society arguably needs more consumers to engage, not fewer. The FCA’s finding that 58% of adults do not hold a pure protection product highlights the scale of the protection gap.

That makes the regulatory response particularly important. If remuneration structures make advice commercially unsustainable, fewer advisers may be willing or able to provide it, particularly where products require substantial professional input but generate relatively modest premiums.

The FCA’s approach is therefore worth watching. It combines rigorous regulatory scrutiny with consultation, evidence gathering and genuine engagement with the industry. It has identified problems, but has not assumed that the answer is necessarily another layer of prescriptive regulation.

Good regulation should …also ask whether the regulatory response itself risks reducing access, innovation and competition

For Australia, the contrast is instructive. Good regulation should certainly challenge poor consumer outcomes. But it should also ask whether the regulatory response itself risks reducing access, innovation and competition.

The FCA’s protection market study demonstrates that there is another way: investigate first, listen to the market, test the evidence, identify the specific problem—and then work collaboratively with industry to fix it.

That is not weaker regulation.

It may simply be better regulation.

(See also: UK Regulator Rules Out Broad Action on Life Insurance Commissions)