Question from an IIABNY member: I’ve had a chance to read Regulation 29 a couple of times now and I was wondering if you could just let me know if I understand it completely. From the way I read it, it sounds like as agents we are not allowed to mix our earned commission with money we’re holding in trust in the same account, except in the instance where the commission hasn’t been taken from that customers payment yet. And the only time we can make transfers out of that trust account is to pay a company or a customer, or to transfer our earned commission to our operating account.
So basically, if we’re getting our direct billed commissions directly deposited into a checking account, to comply with this regulation they would have to go directly into our operating account, correct? And I assume that would also refer to any profit sharing as well? Does this sound like I’m understanding this?
Also, do you see a lot of agents getting caught violating this regulation?
Answer: Basically, you can transfer money out of the premium account to:
- Pay premiums to carriers
- Pay return premiums to clients
- Transfer earned interest to your operating account (assuming you have your carriers’ and clients’ permission to keep it)
- Transfer commissions to your operating account
- Transfer back to your operating account any deposits you made to the premium account voluntarily to maintain a minimum balance.
You are correct in that holding commission in the premium account does not violate the regulation. If your direct-billed commissions are going straight to your checking account, I really can’t think of a reason to move them to the premium account. The premium account is supposed to be only to hold premiums that you’ve received but not yet forwarded on to your carriers and clients. Since your direct-billed commissions aren’t intended for someone else, there’s no reason to put them in the premium account. Ditto for profit-sharing payments.
It’s common for agencies to get fined or worse for mixing up premium and operating funds. To get a feel, check out an of the Disciplinary Actions reports on the Financial Services Department’s Web site (reports issued since last October are here.) Open up one of the reports and do a text search for the word “commingled”. The latest report listed four agencies that were disciplined for that infraction.