Trust Importance
Trust account management is based on the concept of receiving payments from insured’s and immediately compensating the companies who are providing the service. Dispersing the commission income is not typically managed in a formal way; therefore funds are solely based on the needs of the company as opposed to the earnings. Most agencies lack the financial tools required to determine their correct amount of earned commission.
Trust account insolvency is directly linked to mismanaging incoming receivables. Most insurance professionals are out of touch with insurance code mandates and agencies fail to enforce them, causing insolvency to be very common. The solution to this inaccuracy is a separate trust bank account for premiums to make certain that the agency’s business operating funds remain separate. This account would not allow funds to be subtracted without proper documentation and an audit trail. Also, receiving premiums in a timely fashion and forwarding them to general agents or companies should be the goal and major focus of the agency.
The insurance code mentioned above was created to promote premium solvency management which requires the trust bank account balance to equal the net premium which was due to the companies entitled. This code ensures that the insurance brokers are held completely liable for any insurance trust account insolvency that takes place. The goal of an agency with these codes in place is to make sure that all transacted premiums and commissions and liabilities are properly managed. Insurance brokers should be able to go through and study premium financial solvency reports daily with all of the developing technology that currently exists. Unfortunately, trust account management practice is increasingly lacking because the trust account operation is very intricate. In order to fix this problem, insurance brokers should be better educated in accounting and also need a standardized financial solvency reporting system. More accurate reporting could definitely help to better control and monitor the trust account financial solvency. A dependable and consistent financial solvency reporting system should assure agencies a few things; every policy is financially solvent as well as the premiums owned by each carrier and an agency’s entire trust account. There are many financial instruments that can be used to aid in the process of reporting trust account financial solvency. Those instruments consist of a trust account balance sheet, solvency analysis reports, cash solvency reports, cash and receivable solvency reports, premium float statements and statement of trust fund beneficiaries.
It is imperative that insurance agencies and insurance companies maintain an in trust relationship so that they can continue to do successful work together as a team. This way, the insurance company will continue to do business and write programs for the insurance agency. By the insurance agency having strong trust management policies and procedures in place and remaining in trust, this will prove to the insurance company that they are worthy of doing business with them.
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