Oct 2020
The IA from time to time receives complaints regarding the way in which licensed individual insurance agents handle premium which clients pay to them in order for agents to pass the monies onto insurers. These complaints (which are included in the category of “conduct” in the statistics) highlight the type of problems which can arise when a prospective policyholder pays premium to an individual insurance agent, rather than making payment directly to the insurer. These problems include:
Problems which can arise from paying premiums via insurance agents rather than direct insurers
The agent mixing the client’s premium with the agent’s own funds (i.e. the agent paying the premium into his/her personal bank account), thereby creating the risk of the agent losing track of the premium paid or not properly accounting for it;
The agent may delay paying the premium onto the insurer, leading to confusion and uncertainty when the policyholder contacts the insurer about his/her policy status;
This mixing of monies by the agent may, depending on the circumstances, prompt anti-money laundering enquires from the Joint Financial Intelligence Unit.
In extreme cases, the agent misappropriating the premium monies and disappearing with it.
As stated in the Code of Conduct for Licensed Insurance Agents, a licensed individual insurance agent may only receive payment of premiums where he or she is authorized to do so by his/her appointing insurer. Where the agent is authorized to collect premium by his/her appointing insurer, the agent must handle the payment of premium (and pay it onto the insurer) in strict conformity with the requirements, controls and timing set by the appointing insurer. Failure to do so may amount to misconduct on the part of the agent, if such failure is likely to be prejudicial to the interests of policyholders or potential policyholders or the public interest. This, in turn, would expose the agent to disciplinary action.
Top Tip for Policyholders
Insurers, in their quotations, premium and renewal notices, often indicate several methods in which a policyholder can make payment directly to them. Policyholders who have arranged an insurance policy through an insurance agent, should use on of the official methods specified by the insurer to make payment of premium directly to the insurer.
Responsibilities of Insurers
Given that individual insurance agents may only collect premium if they are given authority do so by their appointing insurers, insurers must consider carefully whether or not to provide such authority to their agents.
If an insurer does decide to grant authority to collect premium to their agents, the insurer must put in place adequate controls and procedures to ensure premium payments by policyholders to individual agents are safeguarded. This is especially the case given that the insurer is likely to bear the ultimate responsibility for collection of any premium by its individual insurance agents, given that the insurer serves as the agent’s principal.
The insurer should also make it clear to policyholders what authority agents have to collect premium and the limits of that authority. If the insurer does not give authority to its agents to collect premium, the insurer should make it clear in its premium or renewal notices that payment of premium should be made directly to the insurer by one of the methods provided and must not be made to the agent. Insurers should ensure such notices are sent directly to policyholders by the means which the policyholder is most likely to view of the notice.
Responsibilities of licensed individual insurance agents
If an individual insurance agent is given authority by an insurer to collect premium, it is imperative that the agent only collects premium within the limits of that authority and handles the premium in strict conformity with the controls and procedures specified by the insurer. Further the agent must not mix the premium collected with his/her own money (by paying it into his/her personal bank account, for example). The agent must maintain records of any premiums received in accordance with his/her appointing insurer’s controls and requirements. Any failures in this respect could result in disciplinary action.
If an agent is in any doubt on issues of collection of premium, he/she should err on the side of caution and advise the client to make the payment directly to the insurer by one of the payment channels specified by the insurer.