How your marketplace is compensated sends a strong signal to regulators about your role in the insurance transaction. Placement-contingent compensation is evidence you're "in the business" of insurance. Non-contingent fees align with referral or technology-vendor status.
This page breaks down the three main compensation models and how to structure each to minimize licensing risk.
Key insight: Regulators look at compensation as evidence of your actual role—not just what you call yourself in contracts.
If your compensation goes up when more policies bind, regulators are more likely to view you as a producer who should be licensed. This is true even if you call the payment a "marketing fee" or "technology fee."
Conversely, if your compensation is fixed regardless of insurance outcomes, it's easier to argue you're a referral source or technology vendor, not a producer.
Calling a placement-contingent payment a "marketing fee" instead of "commission" doesn't change the regulatory analysis. What matters is: (1) what activities you're doing, and (2) whether payment depends on insurance being purchased. Substance over form.
A commission is compensation paid as a percentage of premium or as a flat amount per policy placed. Revenue share arrangements where the marketplace gets paid only when policies bind are functionally equivalent.
Regulatory treatment: Commission-style compensation strongly suggests the recipient is "in the business" of selling insurance. In most states, you cannot receive placement-contingent compensation for insurance-related activities without being licensed.
- Works with Model A (Licensed Marketplace)
- Does NOT work with Model B (Referral-Only) or Model C (Tech-Only)
- Requires producer licensing in states where you operate
- Marketplace is fully licensed as producer
- Want to preserve embedded quote-to-bind UX
- Willing to handle multi-state licensing
- Revenue justifies compliance costs
- Marketplace is NOT licensed
- Trying to avoid producer registration
- Calling it "marketing fee" but still contingent
- Multi-state licensing too expensive
A referral fee is compensation for making an introduction—connecting a potential customer with a licensed producer. The key distinction from commission: the fee is paid regardless of whether the customer purchases insurance.
Regulatory treatment: Many states allow referral fees to unlicensed persons IF (1) the referrer does not solicit, negotiate, or discuss coverage, and (2) the fee is not contingent on the customer buying. Both conditions must be met.
- Works with Model B (Referral-Only) if behavior boundaries are strict
- Requires non-contingent payment structure
- Requires strict "no solicitation / no coverage discussions" protocols
- State-by-state rules vary—some states have additional restrictions
- Flat fee per lead/introduction
- Paid regardless of policy outcome
- Marketplace only collects contact info
- All coverage discussions with broker
- No follow-up to encourage purchase
- Written agreement documenting role
- Fee only paid if customer buys
- Fee amount varies by premium
- Marketplace discusses coverage options
- Marketplace shows user-specific quotes
- Marketplace follows up to close
- "Bonus" for high conversion rates
Some marketplaces try to structure a "base referral fee" plus a "conversion bonus" if the customer buys. This typically fails the regulatory test—the bonus makes the total compensation contingent on placement, which is what regulators look at.
A SaaS or technology fee is compensation for providing software, integration, or platform services to a broker or insurer. The marketplace is paid for technology, not for insurance distribution.
Regulatory treatment: When properly structured, technology fees don't trigger producer licensing because the marketplace isn't being paid for insurance activities—it's being paid for software. However, the fee structure and the marketplace's activities must align.
- Works with Model C (Tech-Only Vendor)
- Payment should be for defined technology services
- Typically flat monthly/annual fee or per-API-call pricing
- Marketplace provides technology; broker handles all insurance functions
- Flat monthly/annual subscription
- Per-transaction fee for API calls
- Payment for defined tech deliverables
- Broker-branded insurance experience
- Marketplace = technology provider only
- Clear service agreement scope
- Fee varies by premium volume
- Fee only paid if policies bind
- Marketplace handles user insurance support
- Insurance presented as marketplace offering
- Vague scope mixing tech + distribution
Some marketplaces want SaaS pricing that scales with usage—e.g., $0.10 per quote request or $1.00 per application submitted. This can be acceptable if structured carefully:
Likely acceptable:
- Per-API-call pricing (quote requests, data calls)
- Per-user pricing (seats, monthly active users)
- Tiered pricing based on total transaction volume
Potentially problematic:
- Fee per bound policy (looks like commission)
- Fee as percentage of premium (looks like commission)
- Fee that only applies to successful placements
The key question: Is the fee for technology usage, or is it for insurance outcomes? Structure and document accordingly.
| Factor | Commission | Referral Fee | SaaS Fee |
|---|---|---|---|
| Contingent on binding? | Yes | No | No |
| License required? | Yes | Generally no* | Generally no |
| Behavior restrictions? | Must comply as producer | Strict: no solicitation | Tech services only |
| Quote display allowed? | Yes (as producer) | No (or very limited) | Broker displays |
| Coverage discussions? | Yes (as producer) | No—redirect to broker | No—broker handles |
| Revenue potential | Highest | Medium | Predictable |
| Compliance cost | Highest | Medium | Lowest |
* Referral fee eligibility depends on strict adherence to behavior boundaries and varies by state.
Step 1: Choose your operating model first
Compensation should follow from your operating model, not drive it. Decide whether you're pursuing Model A (licensed), Model B (referral-only), or Model C (tech-only), then structure compensation to match.
You can use any compensation structure, including placement-based commission. Key considerations:
- Commission rates are negotiable with the broker/insurer
- Document the commission structure in your producer agreement
- Ensure compliance with anti-rebating rules (can't kick back to customers)
- Track commissions for tax purposes (1099 reporting)
- Consider E&O insurance requirements
Use a flat referral fee structure with strict boundaries:
- Fee structure: Flat amount per lead/introduction (e.g., $25 per qualified lead)
- Payment trigger: Lead submission, NOT policy binding
- Contract language: Explicitly state fee is not contingent on purchase
- Behavior protocols: Document what marketplace can and cannot do
- Audit provisions: Allow broker to verify marketplace compliance
Sample contract language:
"Marketplace shall receive a flat fee of $[X] for each Qualified Lead submitted to Broker. Payment is earned upon submission of the Qualified Lead and is not contingent on whether the lead results in an insurance application, quote, or policy. Marketplace shall not solicit, negotiate, or discuss insurance coverage terms with any lead."
Use a SaaS or integration fee structure tied to technology services:
- Fee structure: Monthly/annual subscription, per-API-call, or per-user
- Service scope: Clearly define technology services provided
- Deliverables: Specify what marketplace builds/maintains
- Exclusions: Explicitly exclude insurance distribution activities
- Branding: Insurance experience should be broker-branded
Sample contract language:
"Broker shall pay Marketplace a monthly fee of $[X] for access to and use of the Platform. The fee compensates Marketplace for technology services including [hosting, API access, integration support, maintenance]. Marketplace does not provide insurance distribution services and shall not solicit, negotiate, or effect insurance contracts."
Whatever structure you choose, document it thoroughly. Written agreements, invoices, and payment records should all align with your operating model. If you're claiming referral-only status but your invoices say "commission" or vary with premium volume, you have a documentation problem.