Insurance Agency and Broker Audit: Commission, Premium and Client Money

An insurance agency or broker audit checks that commission income is complete and recorded in the right period, that premium collected on behalf of insurers and clients is kept apart and remitted on time, and that licences and regulatory conditions are in place. The firm earns on other people's money, so the key question is whose cash is whose.

Last reviewed: 17 October 2026. Facts checked. We ran a web search on recent insurance law and intermediary rules. It returned law-firm and tax-portal articles, a consultancy alert and an IRDAI consultation draft hosted on a third-party site. We read the search summaries and did not open the Act, the final regulations or any IRDAI circular. The results suggest that an Amendment Act of 2025 came into effect in early 2026, that IRDAI consulted on intermediary regulation in mid-2026, and that one source reports amended intermediary regulations being notified in July 2026. We could not find the final text, so details may differ from the draft, and we state no commission limits. Confirm the regulations in force from the IRDAI site before relying on any provision. Existing site posts were checked so that links point to pages that exist.

What is distinctive about insurance distribution

• Revenue is commission or brokerage from insurers, plus fees and sometimes reward or incentive payments.
• Premium moves through the intermediary in some models, and straight from customer to insurer in others. The model decides the balance sheet.
• Commission is earned on policy issue, but may be clawed back on cancellation, lapse or free-look return.
• Contracts with insurers carry volume bands, contests and trailing payments that run across years.
• Sub-agents and sales staff are paid on a share of commission.
• The licence, qualification and conduct requirements are set by the sector regulator.

Key risks

1. Revenue completeness. Commission statements from insurers not matched to policies sold.
2. Cut-off and clawbacks. Income booked on issue with no allowance for refunds or cancellations.
3. Client money. Premium collected and used for working capital before remittance.
4. Overrides and incentives. Volume-based income recognised before conditions are met.
5. Sub-agent payouts. Payments above entitlement or to unlicensed persons.
6. Licence lapses. Operating with an expired registration or without required qualified staff.
7. Mis-selling exposure. Complaints and ombudsman matters that need provisions.
8. Tax errors. GST on commission and TDS on payouts.

Audit programme in steps

Step 1: Understand the model

Establish whether the firm is an agent, corporate agent, broker or web aggregator, and which insurers it works with. Map how premium flows: customer to insurer directly, or via the firm's account. Read the main agreements.

Step 2: Reconcile commission to insurer statements

For each large insurer, tie the commission shown in the books to the insurer's statement for the period. Test a sample of policies from the statement back to the firm's policy register and the customer proposal. Unreconciled items go on a list with the age of each.

Step 3: Test cut-off and clawback

Review cancellations, free-look returns and lapses in the first weeks after year-end. Check that commission reversal is recorded in the right year. Compare the clawback history to any provision. Test the application of the revenue standard to variable consideration with the same discipline as in our five-step revenue note.

Step 4: Test overrides and incentives

Read the incentive terms and test whether targets were met, as documented by the insurer. Where income is booked ahead of the insurer's confirmation, ask for the basis and the later experience.

Step 5: Review client money

For brokers holding premium, confirm there is a separate bank account for client funds, if the rules require one, and test that balances agree with amounts due to insurers and customers. Check the date premium was received against the date it was passed on. Obtain bank and insurer confirmations. See cash and bank checks.

Step 6: Test sub-agent and staff payouts

Sample payouts and compare to the commission received and the agreed split. Confirm the payee's registration where it is required. Test TDS using our note on commission and brokerage and confirm the current section references from the Income-tax Act in force.

Step 7: Review licensing and conduct

Check the validity of the firm's registration, qualified staff, fees paid and returns made to the regulator. Review complaint logs and open grievances.

Step 8: Review receivables

Age commission receivable by insurer. Old balances may reflect disputes, missing policy data or wrongly booked income. Check for credit notes after year-end.

Step 9: Test GST and other taxes

Reconcile GST on commission and fee income to returns, test input credit on expenses and check reverse-charge items. Use a books-to-portal reconciliation for reverse charge.

Step 10: Review related parties and going concern

Test related-party transactions where the firm sells to group entities or pays group companies. A firm dependent on one insurer needs a note on concentration. See the related party procedures.

Common findings

• Commission statements that never tied to the books.
• Revenue booked with no allowance for cancellations.
• Client premium commingled with operating cash.
• Incentive income recognised before confirmation.
• Sub-agent payouts without agreements.
• Expired registration or missing returns.
• Old receivables from a single insurer.

Which Indian rules to check

Name only. Verify current text:

• The Insurance Act, 1938 as amended, and the IRDA Act, 1999.
• IRDAI regulations for insurance intermediaries, corporate agents and brokers in force.
• GST law for commission and fee services.
• The Income-tax Act provisions on TDS for commission and brokerage.
• Consumer protection and ombudsman rules for complaints.

FAQs

Is commission earned when the policy is issued?

Often, but contract terms and cancellation rights decide how much is earned at that date.

What is the main audit risk for a broker?

The handling of client money and the completeness of commission.

Why reconcile to insurer statements?

They are external evidence of what the insurer owes, unlike the firm's own records.

Related Articles

• Revenue assurance
• TDS on commission and brokerage
• Cash and bank internal audit checklist
• Related party procedures under SA 550

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