What Is Agency Bill in Insurance & How Does It Work?
Learn about agency bill, an insurance premium collection method. Understand how agencies manage payments and their role in the financial flow.
“Agency bill” refers to a specific method of premium collection within the insurance industry. This approach involves the insurance agency directly handling the collection of premium payments from the policyholder. The agency then manages the remittance of these funds to the insurance carrier. This process positions the agency as an intermediary in the financial transaction, differing from scenarios where policyholders pay carriers directly.
Understanding Agency Billing
In this model, three primary parties are involved: the policyholder (insured), the insurance agency, and the insurance carrier (underwriter). The agency acts as a financial conduit, directly collecting the full premium from the policyholder.
The financial flow involves the agency receiving the gross premium from the policyholder. After collection, the agency deducts its commission directly. The remaining net premium is then forwarded to the insurance carrier. This means the agency temporarily holds premium funds before remitting them.
This method is common in certain insurance market segments, such as non-standard commercial lines and excess and surplus policies. The agency’s role extends beyond selling policies to include managing premium collection and reconciliation.
The Agency Billing Process
The agency billing process begins when a policy is bound and payment is due. The agency generates and sends an invoice directly to the policyholder for the total premium, detailing coverage costs and fees.
Upon receiving payment, the agency collects the gross premium and deducts its commission. The agency then remits the net premium to the insurance carrier, typically within 30 to 45 days. Adjustments to premiums, such as those from policy endorsements or cancellations, are also managed through the agency’s billing system.
Comparing Agency Bill and Direct Bill
Agency billing and direct billing are distinct methods for handling premium payments. A primary difference lies in who invoices and collects. With agency billing, the agency invoices and collects directly. Under direct billing, the carrier sends the bill directly to the policyholder, who then pays the carrier.
Commission handling also varies. In agency billing, the agency deducts its commission from the collected premium before remitting the net amount, providing upfront funds. With direct billing, the agency receives commission from the carrier later, often monthly or quarterly, after the carrier collects the premium.
Administrative responsibilities also differ. Agency billing places the burden of collections, invoicing, and managing trust accounts on the agency. Direct billing shifts these tasks to the carrier, potentially reducing agency overhead. However, agency billing allows for more direct client contact regarding payments, fostering closer relationships.