With more and more clients financing their premiums, brokerages must take into consideration the impact this will have in the books, records and trust position. Financing can generally be accomplished through one of the following ways: a third-party premium financing company, the brokerage itself or a separately established premium financing company owned by the brokerage or its brokers.

The impact of premium financing on the brokerage depends on which one of the financing methods are being utilized. Brokerages financing the premiums internally must transfer the amount being financed from the brokerage’s general/operating accounts into the trust account to pay the insurer since the use of any other trust funds constitutes non-compliance with Ontario Regulation 991, Section 16. Simply put, you cannot use Peter’s money to pay Paul.

Brokers and/or brokerages who establish a separate business entity for the purposes of premium financing require a Secondary Business exemption from the Qualification & Registration Committee. Any premiums being financed by clients under these loan agreements must be paid or transferred promptly by the separately established financing business to the brokerage, for deposit into the brokerage’s trust account. Using any other trust funds to pay premiums being financed constitutes non-compliance with Ontario Regulation 99, Section 16. Brokerages should not have any outstanding financed premium receivables over 90 days since the entire amount being financed is supposed to be transferred promptly. However, should there be any financed balances that are over 90 days, these balances must be deducted from the overall trust balance when filing the Form 1 Position Report.

Although a separately established business, brokers and brokerages involved in the financing business are still subject to the requirements outlined in the RIB Act and Regulations, including the RIBO Code of Conduct. Clients must be advised of available alternatives, including low cost or no cost premium payment plans, which may be offered by insurers for the class of business involved. The availability of insurance through the brokerage must not be made contingent upon the client agreeing to use the brokerage’s premium financing terms. The cost of borrowing and service charges must be clearly stated, as required by the Consumer Protection Act of Ontario.

Regardless of the financing method, it is an act of misconduct to not refund any monies, including any applicable premium sales tax, due to clients and non-compliance with the Act and/or Regulations can result in the matter being referred to the Complaints Committee.