A brokerage’s account current statement is generated from invoice driven transactions (i.e. new business, renewals, endorsements or cancellations) producing a premium receivable listing of trust assets and an insurer payable listing of liabilities. The revenue for the brokerage is the difference between the assets and the liabilities.
A brokerage has the option of submitting the insurer payable amount based on either the brokerage’s own statements or the insurer statements. The brokerage must be consistent upon which basis the insurer payables are made.
Depending on the insurer’s terms of payment (immediate/upon binding, 30 days or 60 days), the total amount payable can easily be calculated from the brokerage’s accounts current statements. This calculation will also determine whether or not the insurer subledger is accurate. Insurer accounts should be rolling over 30-60 days at most. These items should be closely monitored and if necessary, removed as they may no longer be deemed to be a “trust” item.
If the brokerage’s trust position is calculated solely from the insurer statements, there is the risk that the trust assets and liabilities do not balance resulting in the trust position being inaccurately reported. To ensure accurate reporting, the insurer payables must be adjusted for the timing differences between the insurer records and brokerage records.
Although not a requirement, insurer payables are broken into subledgers by insurer. This subledger system identifies the amount owed and by whom allowing the brokerage to manage these payables in the most efficient and effective manner. Also, since most broker management systems do not include broker payables with the insurer subledgers, it is important that this be included and to always have this balance equal to all of the outstanding binders at that respective date.
The insurer payables should be reconciled on a monthly basis to ensure that balances are accurate. When errors such as incorrect commission amounts, incorrect invoicing or incorrect opening balances or adjustments to balances are identified early, it can easily be corrected. If the errors are left unchecked, correcting it can be a large and complicated process.