Client credits can take the form of either prepaid premiums or refunds owed. Prepaid premiums arise from client payments on account for an insurance policy that has not been invoiced or is effective at a future date while refunds owed arise from client reduction or cancellation of insurance coverages or an overpayment of premium by the client.

A primary duty of a broker is to collect the premium and issue and deliver the policy to the client as quickly as possible. Refunds owed are owed to the client immediately unless the client has instructed otherwise. How a broker manages his client credits is as every bit as important as the collection of premiums. The proper handling of these credits would enhance the professionalism of the broker to the clients and reduce the potential for an Errors & Omissions claim.

From a reporting perspective, a broker may choose one of the following options:

  • Report the net balance, which is reflected by the broker’s accounts receivable balance on Line 2 of the Form 1 followed by nil balance on Lines 8 & 9.
  • Add the credits to the accounts receivable balance and report the offsetting liability balances on Lines 8 & 9 of the Form 1.

Please be reminded that for option 2, the credit balance should only be added to the accounts receivable balance if the broker’s system includes the credit balances on the listing.

For systems which age credits, brokers are cautioned that the over 90 days credits are still considered to be trust liabilities, and should not be netted against the non-trust assets. The total over 90 days credits should be added back to the system generated over 90 days net accounts receivable balance to calculate the actual over 90 days amount for the brokerage.