IFRS 15 · Insurance

IFRS 15 Revenue Recognition for Insurance Services

Navigate the IFRS 15/IFRS 17 scope boundary and apply the five-step model to insurance brokerage, claims administration, risk consulting, and administrative services only contracts.

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist
a
Have the parties approved the contract and are committed to perform their respective obligations?
IFRS 15.9(a)
Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.
b
Can the entity identify each party's rights regarding the goods or services to be transferred?
IFRS 15.9(b)
The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.
c
Can the entity identify the payment terms for the goods or services to be transferred?
IFRS 15.9(c)
Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.
d
Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?
IFRS 15.9(d)
A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.
e
Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?
IFRS 15.9(e)
Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).

Contract Combination Assessment

(Optional)
Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)
Scope Consideration

Insurance contracts are scoped out of IFRS 15 and governed by IFRS 17. However, revenue from insurance brokerage, claims administration, risk consulting, and administrative services only (ASO) contracts falls within IFRS 15 scope.

IFRS 15 Revenue Recognition for Insurance

IFRS 15 in the Insurance Sector requires understanding the boundary between IFRS 17 Insurance Contracts and IFRS 15.

Scope Boundary: IFRS 17 applies to entities issuing insurance contracts. Insurance brokers, claims managers, TPAs, risk consultants, and loss adjusters provide services within IFRS 15. Even insurers may have IFRS 15 revenue from non-insurance services.

Brokerage — Identifying the Customer: Under IFRS 15.B34-B38, the policyholder is typically the customer for the IFRS 15 analysis, even when the insurer pays the commission. The brokerage service (advice, market access, negotiation) is a distinct service to the policyholder.

Performance Obligations: Market analysis, placement, and negotiation are generally a single PO (highly interdependent). Ongoing claims advocacy may be separate if distinct from placement.

Variable Consideration: Contingent commissions are highly uncertain and often constrained. Volume overrides require estimation using expected-value or most-likely-amount method.

Timing: Placement commission: point-in-time at inception. Claims management: over-time. ASO: over-time using output or time-based method.

Common Audit Pitfalls:

  • Recognising contingent commissions before constraint is released.
  • Not identifying the policyholder as customer.
  • Not separating ongoing services from placement.
  • Incorrectly applying IFRS 15 to MGA activities that bear insurance risk (IFRS 17).

Typical Contract Structures

Insurance service contracts include brokerage TOBAs, claims management agreements, risk consulting mandates, and ASO contracts. Compensation may be commission-based, fee-based, or hybrid, with contingent commissions and volume overrides as supplementary structures.

Common Performance Obligations in Insurance

Policy placement Claims management Risk assessment Administrative services Consulting

Regulatory Context

Insurance brokers are regulated by financial services authorities. The Insurance Distribution Directive (IDD) requires commission transparency, which helps auditors verify completeness of commission income.

Worked Example: Insurance Broker — Placement, Claims Management, and Risk Consulting

RiskPartners places a cargo/liability programme for LogiFreight (€2M premium, 15% commission = €300K from insurers), provides claims management (€60K/year from LogiFreight), and a risk assessment report (€40K). Also expects €40K contingent commission if loss ratio < 50%.

Step 1: Identify the Contract

Engagement letter between RiskPartners and LogiFreight. LogiFreight is the customer for all services. The commission from insurers is third-party consideration for performance to LogiFreight.

Step 2: Identify Performance Obligations

Three POs: (1) Policy placement — single PO at inception; (2) Claims management — distinct ongoing service; (3) Risk consulting report — distinct deliverable.

Step 3: Determine the Transaction Price

Fixed: €300K + €60K + €40K = €400K. Contingent commission (€40K): fully constrained due to loss ratio volatility. Transaction price = €400K.

Step 4: Allocate the Transaction Price

SSPs match stated prices (€300K, €60K, €40K). Total SSP = €400K. Direct allocation.

Step 5: Recognise Revenue

Placement (€300K): at coverage inception. Claims management (€60K): straight-line over 12 months. Consulting (€40K): on report delivery. Contingent commission: reassessed quarterly.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

Are broker commissions within IFRS 15 or IFRS 17?
IFRS 15. Brokers don't issue insurance contracts — they provide placement services. Even though insurers pay the commission, the broker's PO is to the policyholder.
When should contingent commissions be recognised?
Only when it is highly probable a significant reversal will not occur (IFRS 15.56). For volatile lines, often deferred until claims development is mature.
Should placement commission be recognised upfront or over the policy period?
If the broker's only substantive obligation is placement, recognise at inception. If ongoing services exist, allocate and recognise portions over time.
How are ASO contracts accounted for?
As services within IFRS 15. Over-time recognition using time-based or output method (per policy/claim processed).
How should volume overrides be accounted for?
As variable consideration. Estimate using most-likely-amount for binary thresholds. Apply the constraint and reassess each period.

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