Need Help on Earned Premium

[Iatethefivebucks]

Hello everybody. I'm a new member here but have stopped by and read the forums for several years. Finally am at a point where I have time to participate and possibly help others out as I have been helped from time to time on reading the posts here.

Unfortunately, to start, I actually need a little help. I apologize if this post seems long--the situation is new to me.

I do Disability/Long Term Care/Life/health, but got licensed for P&C for purposes of case-splitting when I refer P&C business to a broker I met who would do the work on a 50/50 split.

One of the first cases I referred to this broker was cancelled due to non-payment of premiums and he received an invoice for 'earned premium' from the brokerage house he used to place the business. This brokerage house had received a similar invoice from the finance company used for the case, and has passed it on to the broker.

This broker in turn has passed it on to me. This stuff is all new to me, and I am completely lost on what to do. I am willing to take care of the part I am responsible for, but how do I know how much I should be responsible for?

Some specifics:
1. commercial policy package was all Excess/Surplus lines
2. we collected 1 month premium to start, and collected 3-4 more monthly payments before it fell apart
3. he is writing broker/agent (I referred them to him and he never had me get appointed with anybody, sign anything, etc.)
4. the invoice appears to be asking for the return of $2,800 in commission (I only received $430, so this was a HUGE surprise to me!) plus another $3,000 in earned premium.

Of course I gave him back the amount of commission he gave me, but am unsure of how to approach the rest of it. I don't want to alienate the broker due to not understanding and because he appears to be very good at what he does. But I really don't know what to think after seeing that invoice.

Any help and guidance I can get would be MUCH appreciated.

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Does anybody have experience with this?

 

[noetorres]

Hi, Quite a predicament you have.

I would ask the following questions to start getting to the bottom of it:

1. What was the TOTAL premium of the policy?
2. What were the TOTAL fees? Broker fees, E&S Taxes, Policy Fees, etc
3. What was the minimum earned premium of the policy? Usually 25%.
4. What was the TOTAL amount of the commission paid, as percentage? Before the split.

You mentioned that you collected the first monthly payment only to bind, that's rather unusual for an E&S policy.

Hope these questions help...

 

[Iatethefivebucks]

thanks for your reply, Noe. It IS a predicament. Here is the information I understand (some is on the actual invoice:
1. Total annual premium is approx $26,000
2. there is nothing labeled as broker fees per se, just abbreviations:
NBS, PA, CXL, NCB, PFH, ATF, IN2 That is extent of breakdown I have.
3. minimum earned premium of 25%
4. invoice states 10% was paid or to be paid (isn't that supposed to come out of down payment?)

The invoice only has those abbreviations, but not knowing what they mean makes it very difficult to decipher (or maybe my accounting entry reading skills are just terrible!)

Thank you for helping me with this.

 

[Milkman1265]

I think you should be telling us,

What deal you had with that broker for the p&c business, was it a referral basis, were you on a commission split with him or it was a one time 50/50 split etc...

For the future, surplus lines, i never accept less than 25% + fees and taxes up front for any financing.

Min earn is probably 25%, and who set up the financing? was it a financing company or the broker set up the agreement? insurance carrier financed (i assume not, because they will require all fees up front)?

It sounds to me that the finance agreement was set up wrong. All my E&S have the 25% min earn, broker fee, taxes, surplus lines etc... on deposit first.


If he used a financed company, he/mga should have received 100% of the commission, since the policy is paid in full.

Now, i think everyone made a mistake here and everyone should LEARN from this mistake.

What you need to do is get a break down of the policy numbers and figure out how much earned commission you had after 50% split, then how much min earn they are requesting and pay the net.

I do not know, what agreement you had in place, some people will say 50/50 on the min earn bill, some will say it's all on the writing broker.

It really depends, if you are just doing all the work and he does nothing but get 50%. IMO, i think 50/50 on all commission should also equal 50/50 on the expense too, if you were on a referral basis type agreement.


The finance agreement is definitely not set up correctly if this happened.

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thanks for your reply, Noe. It IS a predicament. Here is the information I understand (some is on the actual invoice:
1. Total annual premium is approx $26,000
2. there is nothing labeled as broker fees per se, just abbreviations:
NBS, PA, CXL, NCB, PFH, ATF, IN2 That is extent of breakdown I have.
3. minimum earned premium of 25%
4. invoice states 10% was paid or to be paid (isn't that supposed to come out of down payment?)

The invoice only has those abbreviations, but not knowing what they mean makes it very difficult to decipher (or maybe my accounting entry reading skills are just terrible!)

Thank you for helping me with this.

Get the total cost form. also if you think about it, 25% min earn is 3 months of payment. If he only paid 10%, and he cancelled the policy the first month, he still owes the other 15% +fees and surplus tax.

Did he know about the 25% min earn fee?I would try to talk to the insured and tell him there is a 25% min earn as stated before and he owes 3 months, and he should pay and reinstate it. Because it's not worth canceling 1 month in on E&S policies.