Why is Agency Bill Good for Your Agency?

Today, we are going to look at a topic that is top of mind to independent insurance agents in general, and Ricono in particular: agency bill accounting.  Yikes, right? I heard the sighs and eye rolls. But, hear me out.

Agency bill accounting refers to a method of premium payment and collection between insurance agents or brokers and insurance companies. This process allows insurance agents to collect premiums from policyholders and then remit those funds to the insurance company, less the agency’s commissions.

Processing invoicing on an agency bill basis has several benefits, especially for commercial policies. The top two reasons I advocate for invoicing insureds using this method are:

1. consistency in the customer experience, and
2. faster receipt of commissions!

 Agency billing helps create consistency in the customer experience

We work hard to sell a new piece of business.  We spend a lot of time and resources on branding our agencies and providing the best customer service to our insureds.  Why would we want to let someone else handle (arguably) one of the most sensitive pieces of the policy management cycle and lose the opportunity to keep engaged with those customers?  If done correctly, and with the right set of tools, agency bill invoicing can be streamlined and easy to manage—and keeps your customers looking to you, their agency, for their insurance needs.  

Regardless of when we invoice our insureds, we must stick with them through the entirety of the policy life cycle.

Agency billing allows the faster receipt of commissions

One of the distinguishing features of agency bill invoicing is that the agency can withhold its commissions when remitting the premium to the company, rather than waiting for payouts from the company.  Recognizing and realizing that income immediately has huge benefits for both the agency and the producer.  Faster receipt of commission funds to the agency means faster producer commission payout. 

 Now for a little history on agency billing (‘cause we like to nerd)

The history of agency bill accounting can be traced back to the early days of insurance practices. In the 17th and 18th centuries, formal insurance companies began to emerge, initially focusing on maritime and trade insurance. The need for structured accounting practices became more apparent as these companies expanded their operations, especially for fiduciary (trust) funds.

In the early insurance market, insurance agents acted as intermediaries between individuals seeking insurance coverage and insurance companies offering policies. These agents were responsible for not only selling insurance policies but also collecting premiums from policyholders. 

The agency bill accounting system was developed to streamline the premium payment process and ensure timely and accurate transactions between agents and insurance companies. Under this system, agents were authorized to collect premiums from policyholders and hold those funds in trust temporarily before remitting them to the insurance company. The agents then send the collected funds (less the agency’s commission) to the insurance company.

Over the years, the agency bill accounting process has been refined and modernized with the advent of technology—specifically agency management systems. These advancements have significantly improved the efficiency and accuracy of the agency bill accounting process, although most management systems weren’t built as accounting platforms (Ricono is fixing this!). 

Each state has established rules and regulations to govern insurance accounting practices, especially and including agency bill accounting.  These regulations help ensure the financial stability of the insurance companies and protect the interests of policyholders and agents. 

Today, agency bill accounting remains a common practice in independent insurance agencies. And it may become even more common: in the current insurance market, I suspect there will be a steady increase in Excess and Surplus business, which is generally agency-billed.  

Overall, agency bill accounting has a long history in the insurance industry, evolving alongside the growth and changes in the market to meet the needs of both insurance companies and their agents.  Keep in mind that the specific rules and regulations for the handling of fiduciary funds varies by state, so it’s essential for insurance professionals to stay up to date with the latest standards and practices. 

This blog originally appeared on Inserds.com, where Crystal is an active contributor.

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