A master/group policy should not be used as a vehicle for the master/group policyholder to generate profit. Their role is as policyholder for the benefit of the group, not to distribute insurance or to generate income.
Master/group policyholders may, however, receive some form of remuneration for administering the master/group policy. Ordinarily this should be limited to a sum to cover the reasonable costs of administering the policy.
Careful consideration should be given to the appropriateness of the remuneration arrangements and managing agents should document the rationale for the arrangements taking into account the master/group policyholder’s actual costs in administering the policy. We would generally expect to see remuneration by way of either:
- A percentage commission commensurate with the work performed; or
- A fixed administration fee commensurate with the work performed.
Master/group policyholders should not be given profit commissions.
Where the master/group policyholder’s remuneration goes beyond meeting expenses managing agents should clearly document why this is appropriate. Consideration should also be given to the potential conflict of interest for the master/group policyholder in its relationship with its members and this must be addressed appropriately, for example through a full declaration of such benefits to the Customers under the master/group policy.
Note that in some jurisdictions master/group policyholders are not permitted to receive remuneration or may require approval to carry out regulated activities before they are able to receive remuneration.