Excellent article explaining the problems that insurance agencies are facing with regard to their Premium Trust Accounting. I have worked for over 38 years in eight agencies utilizing six specialized Insurance Agency accounting systems. With each agency, there were years of accumulated accounting errors to address, as well as a lack of easy balancing tools is some systems..
Many agents believe that their accounting system will maintain proper control of their accounting because their Financials are always “in balance”, and it will, if their accounting people have an understanding of how their system functions, and they maintain the proper control of it. Many agencies believe that ANY bookkeeper can handle their accounting, and unfortunately, there is no one to properly train them in Insurance accounting, or knowledgeable Management oversight. If a novice inherits an out of control situation, they will not have the understanding or experience to clean up the past, or the ability to properly handle the many different types of transactions in the future.
With Applied’s TAM system, there is a reliable Premium Trust Reconciliation report which shows how much you should have in your Trust Bank accounts to cover liabilities to your Markets and your Insureds*. However, IF your Open Company Payables don’t agree with your Balance Sheet payable details, NONE of your Financial reports can be relied upon. If they do, you can easily determine how much you should have in your Trust, and know exactly how much earned commissions you have to cover any advances*, as well as how much money your have available for continuing operations.
Balancing is not the only problem. You still must review your Open Payables to make sure that you haven’t refunded credits that you haven’t received (or received but recorded as income), collected money for insurance that may not have been bound, or cancelled in error.
Without proper balancing, many errors can, and do occur, unfortunately, sometimes with mal intent.
*Some states require extra funds in trust to cover advances. This amount CAN be determined by analyzing the data in the Trust Reconciliation Report, but could easily be determined if the report were available by insured.
What can i do if a Insurance Agency,never evaluated my policy to have proper notice i am Insolvent after i transfer my policy to my 501 c 25 and yet they still try to jack me for the reg rate as a Personal Liability,and yet they never call me in to “evaluate my whole policy”
Thanks in Advance,
and if it not any prob,by chance could i get your e-mail to give you a follow up.
Can you give me an example of an agency bill work flow and how to account for the whole transaction in regards to the trust account and operating bank account. Let me start it out: the agency bills insured $1,000 on behalf of carrier. Commission is noted at 10%. Payment is received from insured and is deposited into…….
So on the Trust Account the 3 inflows/outflows should be A/P to Carrier, A/P to Retail Agent, A/R Insured. And a 4th inflow/outflow for financing company. Also there must be separate books for the Trust Account. Is this correct?
So I’m currently in the process of starting my journey as a sole proprietor, and currently having trouble getting the bank (Wells Fargo) in California to open a separate checking account with “Premium Trust Account” on the account title and checks. They seem to be caught up on the “Trust” part of the terminology, since it’s not a traditional type of “trust account”. They had no issue with putting “operating account” on the other checking account, but didn’t have any experience with this type of trust account, and gave us info about Lawyer’s Trusts (IOLTA). Any advice on the best way to get a bank to agree to letting us call a checking account a TA? Would greatly appreciate it!!!
Many of our affiliate agents have had issues with Wells Fargo and other banks, while others have had no problem. For those having problems, the bank tries to set-up a living trust or an IOLTA. Most have success when they ask to speak to a supervisor or manager and/or provide CA Insurance Code §1734(b). Some banks will label the account with “Premium Trust Account,” but most will label as “Trust Account.” Either is fine, as the statute only requires that the funds be segregated and held in a fiduciary capacity.
Peggy, I am having the same issue in Texas. I am a dba and trying to get this set up is a nightmare. I event went to the TDI and asked for the TDI Code to send to my banker – they told me this was a legal issue and could not help me. Do you happen to know the code that I need to send to the bank to get this going?
Excellent article explaining the problems that insurance agencies are facing with regard to their Premium Trust Accounting. I have worked for over 38 years in eight agencies utilizing six specialized Insurance Agency accounting systems. With each agency, there were years of accumulated accounting errors to address, as well as a lack of easy balancing tools is some systems..
Many agents believe that their accounting system will maintain proper control of their accounting because their Financials are always “in balance”, and it will, if their accounting people have an understanding of how their system functions, and they maintain the proper control of it. Many agencies believe that ANY bookkeeper can handle their accounting, and unfortunately, there is no one to properly train them in Insurance accounting, or knowledgeable Management oversight. If a novice inherits an out of control situation, they will not have the understanding or experience to clean up the past, or the ability to properly handle the many different types of transactions in the future.
With Applied’s TAM system, there is a reliable Premium Trust Reconciliation report which shows how much you should have in your Trust Bank accounts to cover liabilities to your Markets and your Insureds*. However, IF your Open Company Payables don’t agree with your Balance Sheet payable details, NONE of your Financial reports can be relied upon. If they do, you can easily determine how much you should have in your Trust, and know exactly how much earned commissions you have to cover any advances*, as well as how much money your have available for continuing operations.
Balancing is not the only problem. You still must review your Open Payables to make sure that you haven’t refunded credits that you haven’t received (or received but recorded as income), collected money for insurance that may not have been bound, or cancelled in error.
Without proper balancing, many errors can, and do occur, unfortunately, sometimes with mal intent.
*Some states require extra funds in trust to cover advances. This amount CAN be determined by analyzing the data in the Trust Reconciliation Report, but could easily be determined if the report were available by insured.
What can i do if a Insurance Agency,never evaluated my policy to have proper notice i am Insolvent after i transfer my policy to my 501 c 25 and yet they still try to jack me for the reg rate as a Personal Liability,and yet they never call me in to “evaluate my whole policy”
Thanks in Advance,
and if it not any prob,by chance could i get your e-mail to give you a follow up.
Henry:
Do you have an email you can be reached at. I have some questions that it sounds like you would be able to answer.
Thank you.
Azeem Ben Ysreal: Find my email address at LinkedIn and send me a message. I’ll be glad to answer your questions. Chris
Can you give me an example of an agency bill work flow and how to account for the whole transaction in regards to the trust account and operating bank account. Let me start it out: the agency bills insured $1,000 on behalf of carrier. Commission is noted at 10%. Payment is received from insured and is deposited into…….
Tina:
I work for Pennbrook/CAIB Insurance Services in San Francisco, CA My email and phone number are available on our web site.
So on the Trust Account the 3 inflows/outflows should be A/P to Carrier, A/P to Retail Agent, A/R Insured. And a 4th inflow/outflow for financing company. Also there must be separate books for the Trust Account. Is this correct?
So I’m currently in the process of starting my journey as a sole proprietor, and currently having trouble getting the bank (Wells Fargo) in California to open a separate checking account with “Premium Trust Account” on the account title and checks. They seem to be caught up on the “Trust” part of the terminology, since it’s not a traditional type of “trust account”. They had no issue with putting “operating account” on the other checking account, but didn’t have any experience with this type of trust account, and gave us info about Lawyer’s Trusts (IOLTA). Any advice on the best way to get a bank to agree to letting us call a checking account a TA? Would greatly appreciate it!!!
Many of our affiliate agents have had issues with Wells Fargo and other banks, while others have had no problem. For those having problems, the bank tries to set-up a living trust or an IOLTA. Most have success when they ask to speak to a supervisor or manager and/or provide CA Insurance Code §1734(b). Some banks will label the account with “Premium Trust Account,” but most will label as “Trust Account.” Either is fine, as the statute only requires that the funds be segregated and held in a fiduciary capacity.
Peggy, I am having the same issue in Texas. I am a dba and trying to get this set up is a nightmare. I event went to the TDI and asked for the TDI Code to send to my banker – they told me this was a legal issue and could not help me. Do you happen to know the code that I need to send to the bank to get this going?