FRS 102 revenue changes: why they matter for the insurance industry

Revised Section 23 puts non-insurance revenue in the spotlight

The revised Section 23 “Revenue Recognition” aligns FRS 102 more closely with international standards, namely IFRS 15. It introduces a five-step revenue recognition model for contracts with customers. The changes are effective for accounting periods beginning on or after 1 January 2026. We have provided a more detailed analysis of the new requirements in our previous article: FRS 102 revenue accounting changes 2026.

Insurers today compete not only through risk transfer but also through broader service propositions, including health and wellbeing services, home assistance, legal support, mobility services and digital platforms. The role of insurance brokers has evolved with many firms increasingly providing ongoing advisory, administration and risk management services as part of a broader customer proposition beyond traditional policy placement. Revenue derived from these types of services will likely fall under revised Section 23 scope and therefore require further assessment under the new requirements.

While for some types of revenues earned by intermediaries it is clear they fall within the scope of Section 23, insurers may need a more detailed analysis of other revenue streams. Only revenue that has been determined to be in the scope of Section 23 needs to be further assessed under the revised requirements.

Insurers need to look beyond premium income

For insurers, the changes to Section 23 of FRS 102 may initially appear to have limited relevance. Revenues generated by insurance risk carriers from insurance and reinsurance contracts remain outside the scope of the revised FRS 102 revenue requirements and continue to be accounted for under FRS 103.

However, the need for additional analysis can easily be overlooked where insurers have diversified revenue models. Alongside insurance premiums, they often generate income from non-insurance services provided to policyholders, third parties or distribution partners. These revenue streams require reassessment under the revised requirements. For instance, when equivalent revenue recognition requirements were adopted under IFRS 15 in 2018, disclosures in insurers’ annual reports showed that common examples of non-insurance revenue streams include asset management fees, policy administration services, third-party claims handling services, ancillary service income, platform revenues, co-insurance commissions and other service-based income arrangements whenever they are distinct from insurance contract services.

Some insurance products may contain benefits such as virtual GP services, home emergency support, legal helplines and digital applications that may also fall into Section 23 where they are identified as ‘distinct services’. FRS 103, unlike IFRS 17 Insurance contracts, does not contain specific guidance on how other services should be separated or “unbundled” from insurance contract services. Revised Section 23 contains requirements on how to identify whether services are distinct, i.e. whether they should be unbundled. These principles should be considered when assessing whether additional services are "distinct" from the insurance premium income. Insurers may also look at the guidance in IFRS 17 on how to identify distinct services other than insurance contract services.

Brokers might see significant changes to when and how revenue is recognised

Brokers and intermediaries may need to undertake significant work to assess the impact of the revised Section 23, as most of their revenue arises from contracts with customers that fall directly within the scope of the revised Section 23 requirements. Commission income, policy administration fees, claims handling services and other service-based revenues may all require careful reassessment when applying the five-step revenue model.

The timing of revenue recognition could be one of the key technical considerations, especially when brokers provide services beyond the initial placement of a policy. Where ongoing activities such as customer support and policy administration are performed, part of the consideration may need to be allocated to these continuing services and recognised over the period in which they are delivered.

Another area of complexity for brokers could be variable consideration. Profit commission is a typical example where brokers’ consideration includes a variable amount. The amount varies according to underwriting profit. Under the revised revenue requirements, brokers will need to estimate variable consideration using the method that best predicts the amount of consideration: either the ‘expected value’ or ‘the most likely amount’. For profit commissions, management’s assessment may require careful forecasting of premiums and claims and may lead to significant judgements and estimates.

These revised requirements on variable consideration may also affect the accounting for renewal commissions and other forms of contingent remuneration. As a result, brokers should review their revenue streams and customer arrangements to identify any changes to revenue recognition policies, presentation and disclosure.

Preparation for year-end 2026 requires a full review of revenue arrangements

Both insurers and intermediaries should carefully assess revenue streams to ensure that any implications of revised Section 23 of FRS 102 are identified. The accounting for gross written insurance premiums and reinsurance income in scope of FRS 103 will not change, but where insurance and reinsurance contract services are bundled with other services, insurers will need additional analysis as indicated above. 

For revenue streams in scope of revised Section 23, companies will need to determine the performance obligations, allocate the transaction price (including variable consideration where reversals are not expected), and assess whether revenue is recognised at a point in time or over time.

In addition, insurers and brokers will need to consider presentational aspects in the balance sheet (such as the distinction between contract asset and trade receivable, for example) and income statement (including principal-versus-agent assessments, which can affect whether revenue is presented on a gross or net basis).

Even where measurement impacts are limited, the revised Section 23 may require enhanced disclosures relating to revenue streams, significant judgements, contract assets and liabilities, and remaining performance obligations.