Agency Bill
A billing method where the agency collects premium from the insured, deducts its commission, and remits the net to the carrier.
What It Is
Agency bill is a premium billing method where the insurance agency collects the full premium from the insured, retains its commission, and remits the net premium to the carrier within an agreed timeframe, typically 30-60 days from the policy effective date or from the statement date. Under agency bill, the agency is responsible for invoicing the client, collecting payment, and managing premium financing arrangements.
Agency bill gives the agency greater control over the client relationship and cash flow. The agency receives its commission immediately upon collecting premium rather than waiting for the carrier to process a commission payment. However, agency bill also creates significant fiduciary responsibilities: premium collected from insureds is held in a fiduciary trust account, legally belonging to the carrier until remitted. Misuse of fiduciary funds is a serious regulatory violation that can result in license revocation.
Agency bill is more common in commercial lines, particularly for larger accounts and specialty lines. It requires the agency to maintain robust accounting systems, fiduciary accounts, and premium collection procedures. Agencies on agency bill must carefully manage cash flow because they are obligated to remit net premium to the carrier regardless of whether the insured has paid.
Why It Matters for Brokers
Agency bill provides financial advantages but carries significant regulatory and fiduciary obligations. Agencies must maintain separate fiduciary trust accounts for premium funds, reconcile these accounts regularly, and never commingle fiduciary funds with operating funds. Violations can result in license revocation, fines, and personal liability for agency principals.
Real-World Example
An agency on agency bill with a carrier has a $100,000 premium due on March 1. The agency invoices the client on February 15 with payment due by March 1. The client pays on March 5. The carrier's statement requires net premium payment by March 30. The agency deposits the $100,000 in its fiduciary account, retains $15,000 commission (15%), and remits $85,000 to the carrier by March 30. If the client had not paid by March 30, the agency would still owe the carrier $85,000 from its fiduciary account.
Common Mistakes
- 1Using fiduciary premium funds for agency operating expenses, which constitutes misuse of fiduciary funds and is a serious regulatory violation.
- 2Not following up on aged receivables, creating cash flow problems when premium is owed to the carrier but not yet collected from the insured.
How brokerageaudit.com Handles This
brokerageaudit.com tracks agency bill receivables and payables, alerting account managers to aged receivables that require collection follow-up. The Commission Reconciliation module automatically calculates net premium due to each carrier and generates remittance reports, ensuring fiduciary compliance and preventing underpayment.