Most insurance agencies we visit don’t properly reconcile their trust account which leads to a couple of different problems. First and foremost is the E&O exposure when an application never makes it to the insurance carrier or general agency. Even though most Insurance carriers sweep trust accounts nowadays but that opens the door to another problem.
When you submit an application to a carrier and mail a trust check, you’ll know the application never made it to the carrier if the trust check doesn’t clear. Unless you’re suspending every new application you write and are consistently following up on your suspense, you’ll never know. If the application never reaches the insurance carrier and the client has a loss, you’ll be on the hook for the loss – or at best – you’ll have to submit a claim to your E&O Carrier to defend yourself. I don’t know if there’s a defense for this type of negligence and if you think it won’t happen to you, think again.
The other major problem with not reconciling your trust account is carriers that sweep. Often times policies are swept with a full pay instead of the down payment. In some of the larger agencies with mulitple producers, an agent will transmit an app but never collect money because the insured changed their mind at the point of sale. The Agent doesn’t void the application properly and the premium is swept from your account. Mail starts to come in for the policy and nobody can find this “client” in your system. This leads to more work for CSR’s, Agents, Owners and everyone else in your agency.
All of this can be avoided by reconciling your trust account. The first step you should take is to invest in Quickbooks or check with your agency management to see if they have an accounting module. Something else to consider is opening a new trust account and slowly migrating to the new one. You need to contact your credit card vendor and update your checking info as well as the insurance carriers that sweep the account. If you’re not sure how or where to start, hire a bookkeeper and outsource the work.