Insurance agencies have the option to choose the way they bill the insured. One common type of billing method used is agency billing, which occurs when the insurance agency bills the insured for the policy that is issued. The insurance agency acts as the middleman in this case, collecting the entire premium from the insured. The insurance agency then pays the insurance premium to the insurance company, net of the commission due to the agency.
The other common type of billing is known as direct billing. This is the process of creating and transporting invoices directly to the end user of a service or product. Direct billing occurs when the insurance company bills the insured directly and then the insured in turn, pays the insurance company. The commission earned by the insurance agency is then forwarded every month on a direct bill commission statement from the insurance company. The income from direct billed policies gets into the agency management system in one of three typical ways: statement entry, the most common, service billing and depositing the check as income.
One of the major problems many insurance agencies face when using the direct bill process is that it is often difficult to reconcile the commission earned on a monthly basis due to the volume of transactions in which an agency may be paid on. For example, if the insured is on an installment plan, the insurance agency could be getting paid by the insurance company their commission as each installment payment is made. Due to the volume of transactions if this is the case, the agency should pressure the insurance companies to pay them in full when the policy is bound in order to reduce the number of transactions on a monthly basis. Many agencies in today’s world are billing transactions through their workflows in the agency management systems and are able to utilize direct bill commission downloads to reconcile commissions. This allows the insurance agency to automatically download commission statements right from carriers directly into your management system. Utilizing direct bill commission downloads is a very effective managing technique that aids in the reconciliation and billing process. Specifically, direct billing downloads have many advantages that include eliminating hours of manual data entry, increasing efficiency and boosting profitability.
When it comes to managing transactions and figuring out if an insurance agency fully reconciles, there are many points that each individual agency should consider. Identifying the size and volume of discrepancies in what the companies are paying in commissions is one way to do this. Another important aspect to look at is whether or not an agency has the personnel required to perform the reconciliation process and if not, is there a streamlined way of managing this process. It’s also important to think about how much time it will take to perform the process and the amount of discrepancies that may be uncovered, there needs to be a proper balance between the two to determine if there is a cost benefit. One last thing to focus on is how much you trust the insurance companies and their technology to ensure that the commissions that are being paid are accurate and complete.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.