Most states have statutes addressing the issue of commingling agency working capital with customer premium collected. And most agents do a credible job of working within those statutory guidelines. Simply put, premiums collected from clients should be remitted to the insurer promptly to avoid the temptation of using the “float” to bind an agency during a difficult financial stretch.
The billing and bookkeeping departments should have clearly written guidelines about how to account for collected premium. Those guidelines should comply with state law and individual insurer remittance procedures.
Whenever possible, an agency is wise to take advantage of any company direct-billing plans. This removes the premium collection function from the agent’s bundle of responsibilities thus saving the agency the expense associated with billing, collecting and bookkeeping. And management would be wise to arrange a periodic independent audit of its books to discourage employee infidelity.
Planning ahead for the occasional cash crunch by securing a short-term line of credit will keep the agency on the “straight and narrow” and out of potential legal jeopardy.
Michael Sapourn is a Premium Billing Expert and can help you form a plan that will avoid involving your agency in litigation resulting from inappropriate use of funds. Contact Sapourn Insurance Consultants today for expert help.