Direct Bill Commission

[mclureins]

I currently utilize close to 26 carriers between CA. AZ. NV and Texas to write personal and commercial lines insurance. All of which are direct bill commission type policies. I have to manage chargebacks earned and unearned commission and this traffic is consuming a lot of time.

Question:

What do most agencies do to manage their direct bill commission? Do most agents just take whatever the carrier pays without checking or verifying the amounts? How is this process currently being managed?


-ray

[JasonBHBCo]

Ray,

Excellent question. I have worked with numerous agencies on workflows and the billing area is one that is always different from agency to agency, well at least in if agency chooses to reconcile or not.

First off, I will say that with today's agency management systems, one of the most transparent ways to handle direct bill commissions and billing is to utilize direct bill commission downloads. Not all carriers offer it, and for those that don't, some systems can utilize the download of transactions (new business, endorsements, cancellations, renewals) that are premium bearing to create invoices (bills) in the management system. Either way the reconciliation and billing process is a lot less time consuming than it was say, five years ago.

So the question about managing transactions and the time involved (taking into consideration the possibilities above), and whether an agency fully reconciles really comes down to a cost (time) benefit analysis:
- Do you find discrepancies (or have you ever) in what the companies are paying in commissions?
- Are you an agency that has a desire to account down to the penny?
- Do you have personnel that can either perform the reconciliation process (manual or automated) or do your workflows currently support a streamlined way of managing this process?
- Is the amount of time that it takes to do this process balanced by how many (if any) discrepancies you may uncover?
- How much do you trust your companies (just a question to think about this from another angle...) and the technology that they have implemented (download accuracy, back-end billing/accounting systems)?

Each agency - and their level of technology that is implemented, will be different, so there is no one correct answer, but I will say to get to your bottom-line question - more and more agencies are billing transactions through their workflows in the agency management systems, utilizing direct bill commission downloads to reconcile commissions, and reporting the results such that management can review them.

Regards,
Jason

[lawssherry]

This is really a judgement call for each agency. In our agency, the majority of our direct-bill business is with carriers who do a very good job in this area. We are heavy utilizers of direct bill commission download -- we use it for EVERY carrier that offers it. We do not reconcile and take what the carrier pays, but keep our eyes open for obvious issues. We also check new carrier relationships to make sure we understand the flow of dollars.

When we migrated from AfW to AMS360, we tested the direct bill deluxe, which is a quasi-reconciliation method of sorts. After 6 months, we moved those carriers back to the db entry method, where we enter, or process the downloads, and don't do any reconciliation because we were consuming too many man-hours to get the direct bill to the point where it could be posted.

To whatever extent you have the volume with carriers, pressure them to pay you in full, rather than on an installment basis. This will cut down the number of transactions considerably in the right situation. We had a personal lines carrier paying us based on every installment (sometimes monthly) per policy. This was generating over 1500 db commission transactions we had to slog through every month. Because our book is large and profitable, we were able to negotiate payment of our commission in full. Even with endorsements and cancellations, we expect this will cut the transaction count by half or better. It would be even higher except that many of our clients pay in full already, so their policies weren't an issue.

[RiskTaker]

If you are not able to download commissions, I strongly encourage you to at least spot check your commission statements. We never used to reconcile our DB statements and had to write off a significant difference a few years ago (six figures). Now we reconcile, and it's amazing what we have uncovered. One national company wasn't paying the correct Inland Marine commission per our agency contract (-5%), another national company had a gliche in their programming and paid us 5% less on HO commissions, and a third regional company erroneously wasn't giving us any commission on HO. It took them 9 months to get it corrected. This all occurred within the last 18 months.
So you do need to periodically check your statements, if you aren't going to reconcile. It is truly amazing how these programming 'glitches' start to occur at the company level at any point in time! FYI, we are almost $5mil in revenue.
---risktaker