Covid and chronic illness claims drive overhaul of LMA profit commission clauses

The Lloyd’s Market Association (LMA) has published new model wordings for profit commission clauses used in binding authority agreements.

Published today (5 August 2025), the two new clauses were developed by the LMA’s Personal Accident Committee in consultation with the delegated authority community. They are now available via the Lloyd’s Wordings Repository.

Profit commissions are typically paid by a managing agent to a coverholder following the expiry of a binding authority agreement.

However, many traditional clauses stipulate a fixed payment date – often 12 months after contract expiry – without fully accounting for delayed claims development.

This has led to an increase in claw-back provisions, which can be “time-consuming, costly and potentially damaging to business relationships”, according to the LMA.

To provide greater flexibility, clarity and fairness, the new model clauses offer two approaches. One clause allows for a single payment of profit commission, made only after a longer period and with clearly defined claw-back conditions in the event of overpayment.

The second clause provides a multistage payment structure, enabling partial early payments followed by future adjustments based on updated claims experience and binder performance.

Reducing the risk

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-19 and chronic illnesses such as heart disease.

Additional clause updates are expected to be released later this year.

David Powell, head of technical underwriting at the LMA, said: “These new model clauses reduce the risk of claw-back payments, which can take years to sort out when a profit commission is paid too early.

“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 multipayment 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.”