Electronically transferring premium funds to an insurance company has been “a hot potato” topic since the first insurance company began drafting funds from agents’ checking accounts.
In 1992, as an agent, I had my first encounter with electronic funds transfers.  We have come a long way since those early days of erroneous entries and double debiting by the insurance companies. In fact, it was so bad, that I opened a special account and deposited any of the funds to be debited into to that account. I suggested to the insurance companies that they each have their own special account and be fully responsible for any bank fees and charge backs that occurred. That was a reasonable solution when only two or three companies were sweeping the funds from the agency account. Today so many companies require electronic transfer of funds that a new way of managing these funds has become necessary.

I believe a separate account is necessary for managing all premiums, including those that are directly withdrawn from your account by the insurance companies. Many states require agencies to have a premium trust or escrow account into which all premiums collected by the agency are deposited. Even if your state does not require a trust account, I highly recommend a separate premium or escrow accounting system. I would not allow the sweep or drafting of my main operating account. Let the trust account handle all the electronic deductions of funds.

I have seen many different ways of handling this task. Most involve some sort of manual listing of each EFT. This method worked as long as only a few companies were drafting and the bank statement listed each entry with a detailed reference.

Of course, almost every company reinvented the wheel when they designed their EFT system. Some companies draft all the payments daily in a lump sum.  Others seem to draft at will, for one day, two days, even a day and a half, and who can figure out what some are doing. So how do you ever reconcile a bank statement for EFTs? 

Here is an example of how this might be accomplished in your agency.

Most successful methods of managing and reconciling EFTs require the use of good agency automation software. Since I am most familiar with The Agency Advantage for Windows, I will use it in my example to show how agency software can handle the EFT payments and the reconciliation of the statements. 

When a payment is received, a receipt is issued to the customer by the software.  On the receipt, a block is checked to indicate that the payment is going to be transmitted electronically.

Later, after the daily deposit has been balanced, these payments will not appear with the checks to be printed. They will be held in the electronic fund transfer section until moved to the check register. The EFT entries are compared to the agency copy of the receipt and the confirmation receipt or form generated by the insurance company software.

Since we know that the deposit balanced, then we know that we have receipted the correct amount tendered by the insured and this double check will confirm that the correct amount was uploaded.

Next, evaluate whether the company deduction is by individual payments or groups of payments and then determine the frequency of the deductions. The group method of deductions is not bad as long as the company supplies the details electronically in a report every time they transfer funds. The simplest method, however, is the individual deduction for each payment.  (I am sure there is a cost saving involved from the bank for grouping payments compared to individual deductions.) I have seen as many as 75 to 100 payments being uploaded by some agencies on a daily basis. So, you can imagine how big the job of reconciling a bank statement once a month has become. 

To my knowledge, The Agency Advantage software is the only one that I know about that has EFT management integrated into its system. It allows you to post the EFT’s individually or by group to the check register. This greatly facilitates the balancing of the check register.
I once worked with a large agency in New York State that processed so many EFTs per day that the bank faxed them a daily bank statement for reconciliation purposes. I do not know if the bank charged extra for this service but I know that they were able to stay on top of their EFT’s with little or no problems. E & O situations created by drafts not being received by the company and situations of agents uploading the payment twice were resolved immediately. If this service is available from your bank, I highly recommend that you look into it. If your bank does not offer such a service, why not suggest that they may want to be the leader in your area for offering such services.

Many agents have resisted the insurance companies’ methods and rules for electronic transfers. Some agencies have vigorously resisted electronic transactions altogether. Some so strongly that they refuse to do business with companies, that requires EFTs. In spite of this resistance, the companies are moving ahead with more and more requiring electronic transmittal of funds as they search for lower acquisition costs and expenses. 

It is happening industry wide, with the independent and captive companies.  Even in the Life Insurance industry, door-to-door collectors of premiums are now recording their receipts electronically on the insured’s doorstep and depositing their funds into a special bank account where the funds are swept daily.

The debate continues, but the inevitable seems to be that all companies will be requiring every independent agency in America to make its’ checking account accessible to the companies.  So, be ready. Start examining your methods for handling these EFT’s now and don’t get caught down the road still trying to figure out a way to cope with these changes.
Thanks to all who responded so favorably to my recent article entitled “Automate or Evaporate” (FYI Feb. 2001). No truer words have ever been spoken.

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."

Ron Webber