An insurance agent's commission: costs, not income

From the outside, an insurance agent's work looks simple: the client signs a contract and the agent gets a percentage. If the contract carries a premium of 120,000 ₸ and a commission of 20%, it is easy to conclude that the agent has earned 24,000 ₸. In reality, that money has not yet become income. Out of it the agent has to pay for finding clients, office rent, communications, transport, equipment and training, plus wages if the agent has employees, set money aside for taxes, downtime and a possible commission clawback, and then support the contract to the very end of its term.

That is why an agent's commission is better seen as a source for covering costs. Income is only what remains after all those expenses, once the contract has run to the end of its term. This article looks at how these economics work, how an agent differs from a staff employee, why an agent has a financial stake in the contract, and why this model benefits the insurance company.

What the commission actually pays for

Commission reaches the agent from the part of the insurance premium that the insurer allocates to acquiring and servicing clients. For the insurance company, it is an expense of selling and supporting its own product. The law says so directly: commission includes all types of expenses the insurance organisation incurs in relation to the agent, including rent, any remuneration, property and material benefits (paragraph 7 of Article 18 of the Law "On Insurance Activity").

This amount then turns into the agent's own costs. The insurance company pays for the result in a single sum, and the agent organises all the work independently, with no paid workplace, company car, corporate phone plan or advertising department. Some of the costs have nothing to do with any particular contract: meetings that came to nothing, quotes for clients who bought a policy elsewhere, days without sales.

To avoid confusion: for tax and accounting purposes, commission is the agent's receipt, and tax obligations arise under the rules of the agent's tax regime. The point here is the economic substance: only the remainder can be considered net earnings. That is why two agents with the same commission can earn very different amounts.

A significant part of these expenses is fixed: it does not depend on the number of contracts and does not go away in a month without sales. Out of the commission, the agent covers:

• all administrative expenses of the business;
• office rent and utilities;
• mobile and other communications;
• transport;
• maintenance of network equipment and servers;
• wages of staff, if the agent has employees, together with the related taxes and payments.

It is not the insurance company that deducts these amounts from the commission: it pays the remuneration, and the agent pays the expenses personally. Economically, though, the result is the same as with a deduction: only the remainder reaches the agent as income.

One separate cost line exists because the law requires it. An agent that is not a financial organisation may not operate without a valid professional liability insurance contract, and that contract must be concluded with an insurer with which the agent has no agency agreement (paragraph 1-1 of Article 18). At least once every three years the agent must undergo professional retraining (paragraph 2 of Article 18-1). These are all conditions for being allowed to work, and they have to be budgeted for in advance.

Agent and staff employee: different motivations

An insurance company employee and an insurance agent may deal with the same client, but economically they are in different positions. The law separates these roles explicitly: an individual employed by an insurance organisation or an insurance broker under an employment contract may not carry out an agent's intermediary activity (subparagraph 5 of paragraph 1 of Article 18-1). An employee works under an employment contract, while an agent works under an agency agreement, in the name and on behalf of the insurance company.

The main difference is who bears the risk. An employee is paid for working time and performing duties: a salary, paid annual leave of at least 24 calendar days (Article 88 of the Labour Code), and a workplace and tools at the employer's expense. If sales are low this month, the employee still gets a salary and the employer still has to pay it. An agent is paid only for results, and even then only after the insurer has received the premium in full (paragraph 4 of Article 18). No sale means no payout, but office rent, utilities, communications, transport and employees' wages remain.

Hence a different motivation. An agent wants to sell, but wants even more for the contract to stay in force. A client who understood the terms and got help with a loss will renew the contract and bring friends. A client who terminates the contract a few months later will cost the agent a partial return of the money and wasted time.

The model has a downside too. Payment for results alone creates pressure to sell at any cost, so the law makes the insurer liable for an agent intentionally misleading a policyholder (paragraph 2 of Article 18). Since 2026, insurance companies have been required to adopt a client rights compliance policy and to check sales through mystery purchases (control purchases). Commission clawback complements these measures economically: a sale that does not hold is not worth it to the agent.

A unique position: the agent is financially tied to the contract

An insurance agent is in an unusual position. The agent is not a party to the insurance contract and does not assume the insurance risk, yet the agent's money depends on what happens to that contract. The tie begins with the first payment and lasts until the end of the term.

• Commission is paid only after the insurer has received the premium in full (paragraph 4 of Article 18).
• The agent may not deduct remuneration from premiums received from the client: the entire premium is handed over to the insurer (paragraph 5 of Article 18).
• If a non-savings insurance contract ends early due to the circumstances in paragraph 1 of Article 841 of the Civil Code, the insurer keeps the premium in proportion to the time the insurance was in force. If the policyholder withdraws, the special rules of Article 842 apply: an individual who withdraws within 14 days gets the premium back less the part for the elapsed time and expenses; in other cases it is not refunded unless the contract provides otherwise.
• Commission on the refunded part of the premium loses its basis. The agency agreement usually provides that the agent returns it to the insurer by transfer or by offset against future remuneration.

Note the wording: the clawback itself is governed by the agency agreement, so the procedure and deadlines must be checked there. The logic is simple, though. The company refunds the premium to the client, and the agent returns to the company the commission on that part of the premium.

This example shows why it is risky to spend commission the day it arrives. While the contract is in force, part of the amount received remains conditional. If acquiring the client cost 10,000 ₸, then on a straight-line calculation the contract starts making money for the agent only after the fifth month. This mechanism is described in more detail in the article "Performance of an insurance contract by an insurance agent".

The agent's work continues until the contract ends

Commission is usually calculated on the premium, but the work stretches over the entire term of the contract. The law and the requirements for the agency agreement cover both stages: conclusion and performance. Under those requirements, the agent's powers include advising policyholders, reminding them of upcoming instalments and monitoring payment, while the right to provide consulting is established in Article 18-2 of the Law.

When an insured event occurs, the client most often calls the agent. The policyholder must notify the insurer or its representative of the event, and the agent is usually the first to hear: the agent explains the procedure and deadlines, helps gather documents, passes them to the insurer and explains the decision. Loss assessment, the decision on the insurance payment and the actual transfer of the money remain with the insurance company. But questions about them still come to the agent, and they have to be answered without separate pay.

All this work takes time. A consultation six months after the sale, a trip to an inspection, going through a denial, drawing up an addendum: all of it has already been paid for by that same commission. That is why a conscientious agent should factor it in when working out how many contracts are needed to break even. Liability in this work is covered in more detail in the article "Liability of an insurance agent".

How an agent benefits the insurance company

For an insurer, an agent network above all replaces fixed costs with variable ones. Instead of maintaining an extensive network of offices and sales staff in every region, the company pays for a concluded contract, and only after receiving the premium. No sales, no payout. The agent personally pays for rent, communications, transport, equipment and employees' wages out of the commission.

The difference is especially visible where sales volumes are small or uneven: in the regions, on new products, in seasonal lines of insurance. An employee must be paid even in a month without sales, whereas the cost of an agent arises together with the premium. Commission clawback takes a further part of the risk off the insurer: if a contract ends early, the cost of the sale falls along with the premium.

The calculation also shows the limit of this advantage. With a large and steady flow of sales, permanent staff may work out cheaper per contract, which is why insurers often combine different channels. Academic comparisons offer no simple answer either: in one study of expenses by sales channel, direct sales proved cheaper than intermediated sales in only two lines of insurance out of six.

The insurer also has its own costs for agents. It keeps a register, checks that agents meet statutory requirements, organises training and oversight, performs obligations under contracts concluded by the agent, and is liable for a number of the agent's actions (paragraph 2 of Article 18, Article 18-1). So the agency model cuts costs sharply, but not to zero.

International experience

The combination of commission and an obligation to return part of it works far beyond Kazakhstan. It is especially strict in life insurance, where contracts are long and commission is often paid up front.

In Germany, the Insurance Supervision Act requires insurers to ensure that, when a life insurance contract ends early, the intermediary keeps only the part of the commission attributable to the elapsed time when it is spread evenly over the first five years. In Australia, the life insurance market reform capped upfront commission at 60% of the first year's premium and introduced a two-year clawback: 100% in the first year and 60% in the second. In the UK, commission is commonly paid up front on an indemnity basis, with part of it repayable if the contract ends within a period that is usually two to four years. The country's tax authority describes this practice directly in its guidance and notes that insurers often pay 50% or 75% of the amount immediately, holding back the rest to cover such cases.

Agents also remain one of the main sales channels in European markets. In non-life insurance they lead in Italy, Poland, Luxembourg, Germany and Portugal.

What this means in practice

For an agent, the main takeaway is simple: commission should be treated as the revenue of a small business. Work out what one client costs, set money aside for possible clawbacks and months without sales, and budget in advance for liability insurance and retraining. For an insurance company, it is important to understand that too low a commission lowers the quality of support: the agent will have no time or money left for the client after the sale. Requirements on the size of remuneration are also tightening: for contracts linked to a bank loan or microcredit, commission is capped at 10% of the accrued premium (paragraph 6-1 of Article 18).

These economics are useful for the client too. An insurance company discloses on its website the minimum and maximum agent commission by class of insurance (paragraph 2 of Article 16). The draft Law "On the Insurance Market" proposes stating the agent's commission in the insurance contract in tenge and as a percentage of the premium. On seeing this amount, the client should understand that it pays for all of the agent's work over the term of the contract, and that the agent covers costs out of it.

Conclusion

An insurance agent's commission looks like income only in form. In substance, it is the money from which the agent pays for finding clients, administrative expenses, rent, utilities, communications, transport, equipment, employees' wages, mandatory liability insurance, taxes, downtime and support of the contract to the end of its term, and part of the amount may also go back to the insurer. An employee is protected by a salary and leave, whereas an agent bears the risk personally and so has a financial stake in the fate of the contract. In return, the insurance company gets variable rather than fixed costs and a partner with an interest in the contract's long life. An agent's income begins where the costs end and the contract has run its full term.