Insurance companies and General Agencies would not knowingly fail to pay any commissions due your agency, but with the volume most companies' process, mistakes are commonplace - and they usually cost the agency, not the company. 

If you do not reconcile your company statements, you are leaving money on the table.  How do you know you are being properly credited and paid by insurance companies? What about all those cancellations and reinstatements? Sure, you're being charged the return commission on the cancellation, but are you getting credit for the reinstatement commissions?

Insurance companies want the correct agency to get credit for their sales, but until we reach the point where all policies are being uploaded, errors will be made entering the agent's code. 

I have always been one of those unusual agents that could not wait for the company statements to arrive, so I could start tackling the reconciliation of those statements. Of course, I have an accounting background so I like that kind of stuff. Many of you remember the days when most statements were net bill and many were account current. Now that most companies are direct bill and more are becoming "as earned," why do you need to reconcile these statements? 

We all know that if you have an insurance company that is an "agency or net bill" type company, you must reconcile those statements first, because you generally have to write a check for the return premiums or account current amount due. If you let these statements slide, you are asking for trouble. And if the company allows outside financing, you have to calculate that into the formula and the task gets more complicated.

The best business practice is to operate a suspense system that will confirm that all policies get issued at the correct premium. Years ago, we used invoicing systems that were dependent on everything being in the right place, and nothing getting buried in the wrong slot. For the most part, it worked, but involved more paper being added to the system. Balancing a net bill statement, many times took days and you did not have too many days until the bill was due. Back in the 1970's and 80's many agencies operated very productive accounting systems, but it was very paper and labor intensive, but commissions were higher and we could better afford the labor.

Every policy and invoice that reached the agency was manually checked for accuracy. If anything did not clear the calendar in a reasonable amount of time, you were on the phone and asking the company to track it down.  It may have been lost in the mail or coded to the wrong agency. Bookkeeping in a typical 1500-client agency was a full time job. 

Slowly the late 80's and 90's brought about the industry trend to change everything to direct bill.  Sure, it made cash flow for the agency a lot tighter, but after a few months no one noticed especially around the 10^th of the month when the checks started arriving with the monthly statements. Since the agency was now sending all the money to the company and the company was sending them their monthly commissions for the full term of the policy, reconciling all those statements, became a lost cause.

Some of you that reconcile everything every month might think I am kidding, but in the almost 300 agencies that I have worked with during the past 7 years, most had not reconciled a direct bill statement for over two years. 

If you have an agency that is generating $150,000.00 in annual commissions, you have a possible 10% error ratio or $15,000.00 of your money. I have heard many "gold nugget" stories from agents who have begun reconciling monthly statements. Many have found almost unbelievable errors on their monthly statements, some totaling $1,800 - $2,400.

And how about those "as earned" statements, how do you ever keep up with your commissions receivable from the companies? One agent recently told me, "I can't afford a full time bookkeeper to check all those statements and I have to trust the companies to do it right." My response was, "you can afford to throw money away, but you can't afford to check the statements?". Is there a solution? I am glad you asked.

The answer is automation in combination with good business practices. For as little as $150.00 per month, you can automate your insurance agency with an agency management system.  You can have an automated invoice created every time you write, endorse, cancel, reinstate, or renew a policy. An automated open binder suspense file is created to verify that every policy is received and alerts you if one does not get issued, preventing a possible E & O problem.  When the policy get issued and is received in the agency, someone must take the time to check every policy for accuracy of coverage, content and premium. You must enter every cancellation and reinstatement with the correct premium deduction and addition. 

At this point, the actual comparison of the statement issued by the company and your system reconciliation will be a breeze, because you have been setting up the reconciliation all month a little at a time. You are also fulfilling your role as an agent and making sure that the client receives the correct coverage at the proper premium. It is still part of the job. It did not disappear when direct bill came on the scene. 

The reward is twofold. You will receive the proper commission for your work and you have lowered your E & O potential. Pretty good deal for only $5.00 per day for an agency management system. If I can help you with your automation process, call me and lets talk.
Until next month, keep automating those agencies; I really believe it is the only way that you are going to survive in the 21^st Century.

Remember, the bottom line is "Automation equals Productivity and Profitability."