Paying for an insurance broker’s services is not a cost but income for the company

An insurance contract is bought for an event that may not happen for many years. So the client sees the price of the policy straight away, but learns the quality of the work behind it only when a loss occurs. This invisible part is where an insurance broker’s work sits: the broker studies the risk, compares insurers, drafts the terms and pursues the claim payment. That work takes specialists’ time, methodologies and experience, and someone has to pay for it.

In Kazakhstan, the law gives the answer. Article 17 of the Law “On Insurance Activities” provides that any remuneration to a broker for brokerage activities in the interests of the policyholder is payable only by the policyholder. The exception concerns settlements between the broker and its affiliate, also a broker, on the same risk. This article looks at what exactly the client pays for, why this payment comes back to the company as income and how the question is handled in other countries.

How a broker differs from the other parties to a transaction

An insurer accepts the risk and sells its own terms. An agent acts in the name of the insurer and on its instructions. A broker stands on the other side: the law defines it as a legal entity that represents the policyholder in relations connected with the conclusion and performance of insurance contracts, or that carries out intermediary activities for the conclusion of such contracts in its own name and on the policyholder’s instructions. The broker does not thereby become a party to the insurance contract.

This is the main difference. A broker chooses among offers from different insurers and answers to the client for how it organised that choice. The specific list of its rights, obligations and liability is set by the contract with the client, and the terms and procedure for paying the remuneration are a mandatory term of that contract.

What the client pays for: five areas of work

It is easy to mistake a broker’s service for mere intermediation in buying a policy. In reality, the purchase is only one stage out of six. Kazakhstan’s legislation lists this work in some detail.

1. Analysis of offers and of insurers’ financial stability

The broker obtains information from at least three insurers licensed for the relevant class: rates, the size of equity, insurance terms and licence details. The Rules governing broker activities require the broker to ensure that the contract is concluded with an insurer in a stable financial position, on the terms most favourable to the client. By this criterion, the lowest premium does not in itself mean the best offer.

The comparison rests on the broker’s internal methodologies and its experience of working with insurers. That experience matters no less than the financial statements: public figures show capital and reserves, but not how a company contests complex claims or how quickly it makes decisions. A simplified model of such a comparison is shown below.

2. The insurance programme and the contract wording

The law includes in a broker’s work the development, on the client’s instructions, of insurance terms and criteria for selecting an insurer, as well as expert work to identify insurance risks. The broker determines what to insure, for what sum and with what limit, what deductible to accept, which exclusions are unacceptable and how to insure business interruption or liability to third parties. The result is an insurance programme that links individual policies into unified protection, and a contract wording written for the risk of a specific company.

Requirements for this wording are also established. The broker ensures full and accurate disclosure of all insurance terms, and specialist terms in its documents must have a complete and unambiguous interpretation. The insurance slip and cover note it issues are together equated to an insurance contract, so an error in them becomes an error in the contract itself.

3. Full support of the transaction

From the first enquiry until the contract takes effect, the broker handles all the paperwork: it collects information on the insured objects, prepares documents, circulates the slip, obtains insurers’ confirmations, communicates the agreed terms to the client and arranges the contract. Where there is an agreement with the client, it collects premiums and must transfer the money received within three business days, unless the contract provides otherwise. A separate bank account is used for such operations, and the broker’s own funds and clients’ money are accounted for separately.

The work continues after signing: changes in the insured objects, renewal, moving to another insurer, monitoring of deadlines. The client has one responsible specialist for the entire programme.

4. Work on all insured events

This is where the difference between a policy and protection becomes visible. The broker ensures that documents are completed correctly and on time when payments are made and claims are considered, prepares materials for loss settlement, organises the work of loss assessment experts and helps obtain the payment. It acts in the name and on the instructions of the client, within the authority granted to it.

For a company, a major loss is often a one-off event, while for a broker it is everyday work. The broker knows which documents the insurer will request, what deadlines the contract sets and which argument will work in a dispute over the cause of the damage. If an event occurs years after the contract was concluded, the client will need the same level of expertise as at the time of purchase.

5. Negotiating with the insurer in the same language

An insurance company’s underwriter and lawyer speak the language of rates, limits, clauses and exclusions. A CFO or company head has no way of acquiring that experience, and it is not their job. The broker, in its own name and on the client’s instructions, negotiates the premium, the terms and the acceptance of the risk. It frames a request the way such requests are usually assessed in insurance, and it understands what can be obtained and where the insurer will run up against its reinsurers’ requirements.

Why paying for a broker’s services is income rather than a cost

In accounting terms, a broker’s remuneration remains an expense. For a business, something else matters more: what the company gets in return. A contract written for its risks and properly conducted loss settlement preserve money that would otherwise have to be covered from the company’s own profit. It therefore makes more sense to assess a broker’s service as an investment that pays back in results.

This result depends on the quality of the work and on the specific risk, so it would be wrong to promise it in percentage terms in advance. An illustrative calculation is given below, in the section on the model.

Why the question of payment matters so much

Remuneration determines whom a person works for. If a specialist is paid only for a concluded contract, there is an incentive to close the deal. If the client pays for the work and can see the amount, the incentive shifts towards quality. Hence the logic of the Kazakhstan rule: the party in whose interests the broker acts is the party that pays it.

There is no such thing as a free broker. The European Insurance Distribution Directive distinguishes between a fee, that is, remuneration the client pays directly, and a commission included in the insurance premium. In both cases the source of the money is the same: the premium or the client’s payment. The only difference is how visible this amount is to the buyer and who agrees it.

In Kazakhstan, the amount of the broker’s commission is stated in the insurance slip and cover note. The client sees this amount in its own document and can discuss it in advance. The draft Law “On the Insurance Market” proposes to include loss settlement in brokerage activities without a separate charge. If the draft is adopted in this form, the main remuneration will have to cover work on future claims in advance as well. By pushing it down to the limit at placement, the client risks being left without that resource at the moment it is needed most.

A professional and regulated market participant

A broker is a professional participant in the insurance market, subject to separate regulation. Broker activities are licensed and supervised by the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market. The Law makes this an exclusive activity: a broker cannot also work as an insurance agent, and it is prohibited from investing the premiums and payments it receives.

Information about brokers is open. Article 16 of the Law requires a broker to have its own website and to publish on it its name and contact details, business identification number, licence number and date, types of activity, annual financial statements for the three preceding years confirmed by an auditor, information on its participants and on membership of associations, and details of its current professional liability insurance contract. Brokers operating in Kazakhstan can also be looked up in the association’s register.

There is also direct financial liability. If unreliable or incomplete information about an insurer causes harm to the client, the broker compensates for it in the manner established by civil legislation. More on what is changing for brokers can be found in the article “Legislation for Insurance Brokers — 2026”, and reporting deadlines are collected in the broker calendar.

International experience

The broker as a hallmark of a developed market

Widespread use of insurance brokers’ services and a high share of brokers in the insurance market are characteristic of developed markets. Buyers there understand their risks well, value an independent representative and are prepared to pay for a professional service, and the law describes the intermediary’s duties in detail. This is most evident in business insurance: in the United Kingdom brokers account for 85% of commercial insurance, in Ireland 95%, and in the London Market at least 95%.

Distribution channels are organised differently from country to country, and the broker’s share depends heavily on the history of the market. In Belgium, Bulgaria and the United Kingdom, brokers account for half or more of non-life insurance premiums; in Italy, Poland and Germany agents lead, and in Finland direct sales prevail.

The overall share hides the main point: the more complex the risk, the more often the buyer goes to a broker. In many countries individuals readily buy standard policies directly, whereas companies prefer a representative. The European Commission’s sector inquiry into business insurance found that brokers serve about 43% of this market in the EU, and that among large corporate clients their share is 55–60% in most lines of non-life insurance. The Commission described the broker’s economic role as follows: it lowers search costs, reduces information asymmetry between the parties and strengthens the negotiating position of small and medium-sized clients.

Who pays the broker and how in different countries

There is no single global model, but the general direction is clear: the market and regulators require that the client understands who pays and how much.

The United Kingdom and Germany illustrate the strength of the legal framework. A British broker is usually regarded as the policyholder’s agent and owes it fiduciary duties: to act in good faith, to avoid conflicts of interest and to account for any secret profit. The Insurance Act 2015 requires the policyholder to make a fair presentation of the risk, and information known to those who are responsible for insuring it, including the broker, is taken into account in assessing this duty. If the policyholder made a careless error and the insurer, with full information, would have charged a higher premium, the insurer may reduce the payment proportionately. A well-prepared risk presentation therefore has a direct effect on future indemnity.

In Germany, the Federal Court of Justice described the insurance broker as far back as 1985 as a representative of the policyholder’s interests, obliged to take comprehensive care of its insurance interests. The Insurance Contract Act requires the broker to base its advice on an analysis of a sufficient number of contracts, and an intermediary that breaches these duties compensates the client for the damage.

The Nordic experience: payment by fee

The most telling example comes from northern Europe. In the early 2000s the market asked itself a simple question: how can a broker represent the policyholder if the insurer pays it? Some local insurance companies stopped paying commissions, regulators supported the move, and brokers had to negotiate fees with clients. Finland has a complete ban on commissions, Norway and Denmark have a ban with exceptions for large risks, marine and aviation insurance, energy and reinsurance, and in Sweden the market arrived at an agreement among insurers with an emphasis on transparency.

The conclusion here cannot be reduced to a single formula. Market participants note that the broker’s role has become clearer and service level agreements more detailed. At the same time, the brokers’ share in Finland has fallen, and competition on fees in neighbouring countries has reduced their income and increased staff turnover. Swedish insurance buyers draw a practical conclusion: transparent payment has lowered their costs, but it is in their own interest not to push remuneration too low, otherwise service and qualifications will suffer.

This is exactly what the Kazakhstan market should take from it. The client needs a visible price for the service, a clear scope of work and adequate payment that allows the broker to retain specialists.

A model: how payment comes back to the company

Payment to a broker is best assessed together with the price of the error the broker is meant to prevent. The illustrative example below shows one of the most common errors in property insurance: underinsurance. The figures are chosen for clarity and are not market statistics: the actual rate and remuneration depend on the risk.

A broker does not guarantee that there will be no loss or that a dispute with the insurer will end in the client’s favour. But in this example, remuneration of ₸2 mn and a premium increase of ₸6 mn preserve ₸90 mn for the company on a single loss.

When a broker is especially useful

A broker is not needed for every policy. A company can buy a standard contract with a low cost of error directly. The broker’s value grows with the complexity of the risk and the size of the potential damage.

How to check a broker before paying

A client should demand from a broker the same openness that the law demands of it towards the market. Below is a short list of questions that helps assess the service before signing a contract.

Conclusion

Paying for an insurance broker’s services works towards the company’s income, because it preserves money when a loss occurs and employees’ effort every day. In paying for a broker’s work, the client buys analysis of the market and of insurers’ reliability, a programme and contract written for it, support of the transaction, representation in every insured event and negotiation with the insurer in professional language. Kazakhstan’s law establishes this link directly: the broker acts in the interests of the policyholder, and the policyholder pays its remuneration. International experience adds two conditions: the client must see the price of the service, and the price itself must be sufficient for quality work. Widespread use of brokers’ services is characteristic of developed insurance markets, and for Kazakhstan companies this is a step towards the practice accepted there.