Insurance premiums are billed and collected by either insurance companies or franchisees. Brooke requires premiums be collected by insurance companies, not franchisees, when direct insurance company billing is available. In those circumstances when insurance premiums are billed and collected by franchisees, they are required to process these premiums in a responsible manner. Franchisees must never succumb to the temptation of using these premiums to pay business or personal expenses. Brooke has safeguards in place to help ensure insurance premiums are handled responsibly by franchisees because of the obvious importance to consumers, regulators and insurance companies. These franchisee, or agency, billing safeguards, although essential, are cumbersome and expensive to administer, which is the primary reason franchisees are required to use direct insurance company billing whenever possible.

Independent Trust Account Safeguard The responsible handling of franchisee, or agency, billed premiums requires, first and foremost, the immediate collection and deposit of all such premiums in the independent trust account. These premiums must never be used by franchisees for payment of business or personal expenses. All franchisee billed premiums received from customers are held in the organization’s trust account until paid to insurance companies. Correspondingly, all premium refunds received from insurance companies for franchisee billed policies are held in the organization’s trust account until paid to customers.

Brooke’s trust account arrangement helps protect consumers and ensure regulatory compliance by Brooke franchisees. Many state regulators require trust accounts because some independent insurance agents use premiums collected from consumers to pay personal and business expenses prior to ultimate payment of those premiums to insurance companies, creating the potential for agent fraud and abuse. Trust account arrangements are especially important for agents who are past due in payments to their creditors and are tempted to use insurance premiums to fund business operating expenses.

Premium Allocation Safeguard Brooke’s franchise agreement specifically provides for the immediate allocation of all franchisee, or agency, billed insurance premiums directly from insurance company statements to the franchisee’s monthly statement. This allocation provides the foundation for monitoring to ensure franchisees are handling premiums in a responsible manner.

In accordance with the franchise agreement, agency billed premiums are immediately recorded as charges to franchisees’ statements when billed by the insurance company or, in the case of online premiums, when electronically deducted by the insurance company. Agency bill charges are directly passed through to franchisees’ monthly statements in the amounts billed or deducted by the insurance company in accordance with the franchise agreement. Franchisees do not, and should not, have the flexibility to determine when and what must be paid to insurance companies for premiums collected from consumers because this creates the potential for agent fraud and abuse. For example, franchisees could take the premiums collected from consumers and deposit to their personal account instead of the trust account, and this fraud would go undetected if it were not for Brooke’s practice of immediately and directly passing through to franchisees’ monthly statements the amounts billed or deducted by insurance companies. Regardless of whether franchisees are fraudulently pocketing premiums that belong to insurance companies or are just poor collectors, any such amounts are identified by Brooke at the end of the statement cycle as uncollected premiums (see Uncollected Premium Safeguard) and the franchisee is required to pay the premiums. It is franchisees’ responsibility to collect agency bill premiums and promptly deposit them in a Brooke trust account.

Premium Matching Safeguard Another safeguard for ensuring franchisees handle franchise billed premiums responsibly is the matching of premium deposits made to the independent trust account (as required by the Independent Trust Account Safeguard) to the agency billed premiums allocated to franchisees’ monthly statements (as required by the Premium Allocation Safeguard).

Agency billed premiums deposited by franchisees are recorded as receipts to franchisees’ monthly statements immediately upon verification by the processing center that the corresponding deposit has been made by the franchisee. Premium matching does not occur until the deposit has been verified and the corresponding receipt recorded to franchisees’ monthly statements. The timeliness of the deposit verification process is reliable and certified by the processing center’s deposit verification team each month.

Uncollected Premium Safeguard By matching the premiums recorded as receipts to franchisees’ monthly statements with the premiums allocated to franchisees’ monthly statements (as required by the Premium Matching Safeguard), Brooke can identify premiums that franchisees have not collected, or have collected and not deposited to the independent trust account (as required by the Independent Trust Account Safeguard).

Although it is best practice to collect premiums when an application is completed, if a franchisee does not follow this common sense approach, this safeguard helps the franchisee manage their accounts receivables. It also helps franchisees identify employee issues and concerns, such as employees in need of additional training on how to collect and deposit premiums or, worse yet, employees who are collecting premiums but converting them to their own use instead of depositing them as required.

Escrowed Premium Safeguard Receipts from a customer for insurance premiums due to insurance companies or receipts from insurance companies for return premiums due to consumers must be held, or escrowed, in the independent trust account until paid and are, therefore, unavailable for use by franchisees.

By identifying those premiums recorded as receipts to franchisees’ monthly statements that do not match with a premium allocated to franchisees’ monthly statements, Brooke escrows in the independent trust account those premiums obligations that remain unpaid to insurance companies. Correspondingly, Brooke escrows in the independent trust account those return premiums due to consumers by identifying premium credits allocated to franchisee’s monthly statements for which a matching check has not been written to the consumer.

This safeguard is especially important in connection with those franchisees who lobby for access to the escrowed funds to pay business or personal expenses. In addition, this is a helpful safeguard for well-intentioned franchisees because it serves as a helpful “tickler” if a policy is, for some reason, not issued in a timely manner. If a receipt remains escrowed for an unreasonable length of time, it signals to the franchisee there may be a problem with policy issuance and that a call should be made to the appropriate insurance company to check the status.

Policy Cancellation Safeguard After monthly franchise statements are finalized each month, cancellation letters are prepared for all uncollected premiums. If the franchisee’s account with Brooke is not in good standing, then Brooke typically sends cancellation letters directly to the franchisee’s customers.