Author: VU Faculty

An insured's account renewed in May, but the policies were not delivered until June. The agent believed that late delivery made these policies June items, payable to the insurer by August 15, 45 days following closing of the June account. However, when the insurer didn't receive payment on the policies by JULY 15, they put out direct notice of cancellation to the client! Is that right?!

Below is a question recently submitted to our "Ask an Expert" service. To give the agent a fair hearing on his side of the story, we've included the email dialogue as it transpired.

"The facts are, we had two agency billed policies for the same client renew on May 20th. The insurer is running behind in their branch office and the the two policies (they always issue the BAP separately) came to us June 5 and June 11.

"We have always considered that late delivery makes these policies June items, subject to booking as June items, and thus payable to the insurer by August 15, 45 days following closing of the June account. The items appeared on their "open items" listing in early July. As they hadn't appeared on the May account current we had sent them, we returned the open items listing with the annotation that they were on the June account current, and thought that everything was fine.

"When the insurer didn't receive payment on the policies by July 15, they put out direct notice of cancellation to the client without so much as a phone call or communication of any kind.

"The insurer makes a big issue out of the fact that even though these are May items, they are subject to payment 45 days following the effective date, despite their late issue and delivery.

"I contend that while they are technically correct under the agency agreement, that to take this position penalizes the agent who is shorted in his time to collect and pay the policy and that the literal terms of the contract have to give way to fairness. They are standing pat on their position.

"Would your 'experts' have any views on this situation, which has to involve every agency at one time or another?"

In IIABA's ongoing company contract analysis, we consistently recommend that a provision be included in the agency/company contract setting out the length of time to pay balances and that this also obligates the company to pay balances due to the agent on the same basis that the agent must pay the company.

The provision should also provide that the period of time allowed to pay balances does not commence until a correct, billable and deliverable policy is furnished to the agent. The provision should include the stipulation that, should the company be unable to issue the policy in a timely manner but wish to collect the premium, that a billable estimated premium binder be issued by the company.

HOWEVER, most agents do not make these changes to the contract and, as such, are obligated to pay these "amended" account currents based on the policy date and not the ISSUANCE date. We just reviewed three major company contracts and they all make this stipulation.

We realize that smaller agencies lack the negotiating clout in many cases to make such contract amendments, but this cash flow adjustment is critical and the agency should make every effort to do so. We work at the national level on this and other issues, but this unfortunately is a pretty common practice.

The problem, aside from cash flow, is that, when companies get behind like many are during the hard market, these things can happen. Sadly, it is the insured that often suffers when service and goodwill are at the mercy of procedures.


A lot of agents are getting caught in this position. The factor we have to keep in mind is that coverage begins on the effective date whether a policy is issued or not (if coverage is bound). The client has coverage and, in return, it is good policy for agents to collect their money at the time the policy is bound rather than collecting when the policy is delivered. This helps with cash flow too and keeps agencies from getting behind when policies cancel before they are issued.


I've been on the band-wagon for over 20 years now telling my insurance customers and agents wherever I can encounter them that IT'S THE POLICY DATE THAT COUNTS! I know it doesn't help, but the fact is that the carriers have been lax in the past (and might be in the future), but the principle of insurance indicates that $$ is due when COVERAGE begins, not when a policy is issued, printed, mailed, etc. If you collect when coverage begins this problem diminishes since the $$ is in the bank. The insurer may be acting poorly to its agents by canceling without notification, but they are (by their contract) within their right to do so.

The issue of late booking of policies becomes an issue with all carriers when their service breaks down. Usually they aren't hard nosed about it, however the accounting departments don't always know that the branch office is behind. This is the case with this insurer as the branch issuing policies is a thousand miles away from the office doing the accounting.

I guess it has come up enough times over the years that I would like to see the standard agency/company contract language acknowledge it. I don't think it would take a lot of extra language, just some that recognizes that polices get booked not in their effective month, but in the month of issue by the company, if issue is later than effective. That still leaves conflict with issues that occur on the last day of the month and aren't received until the next month by the agent, and perhaps language could be developed to recognize even that situation.

But I would say this is a matter of the hard market. Things just become more literal and less flexible when capital is strained.


I can't tell you how many conversations I've had on this subject and related ones in the last five days. Companies are obviously causing billing problems and cash flow problems from lots of directions. They obviously are not staffed for this hard market. Based on all these conversations and frustrations, may I make some suggestions?

Not all companies are having these problems and many companies with the worst problems seem to have many more stability issues based on the company stability analyses I've completed the last few years. This carrier is definitely, in my opinion, in this category. In fact, I think the stability issues are what are driving the service issues. Therefore, even though this is a hard market and agents need all the markets they can get, maybe consider choosing more stable markets?

If we do not know what the ultimate premium will be, we know it will not be $0. Therefore, if we binder bill at least the first few months premium, we'll have the money to pay the company and we can adjust the total owed later, right? It would be best if we had exact figures but we often don't right now.

This is where adequate working capital is key to agency survival and why some agents are failing in this hard market. They do not have enough working capital to service paying companies earlier. Agencies with working capital can pay their companies and collect later when they know what the premium will really be.


I sincerely thank you for the responses I received, even though I am not in total agreement with the respondents. First of all, a small agent doesn't have leverage to change the agency agreements that are offered by an insurer. Insurance policies are more endorsable than is an company/agency contract, and I gave up getting bloodied over that a long time ago.

Secondly, while I agree that coverage begins on an effective date, and that an agent should binder bill, often times the agent doesn't know the correct amount to bill because the company that is late getting policies out isn't in a position to put out renewal quotes. Additionally, once an agency crosses from one month to another, the agency management system effectively closes out that month's account current and goes onto the next. So to add a late billing to last month's payable listing can be a manual transaction.

I guess I still feel that in the case I described, the agent is being penalized for the company's poor service, and I also feel that there is no court in the land that would uphold the insurer's position strictly applying the terms of their contract. Contract of adhesion, right?

But having said all that, I really appreciate the sounding board that VU provided in my case, and in other matters generally. Thanks to you all.

Do you have an opinion? Feel free to email your thoughts, opinions and suggestions to Bill.Wilson@iiaba.net and we'll post them here:

Your comments here.