Precise and accurate financial management is an essential aspect of the smooth running of the business. Hiring a bookkeeper can be beneficial for you and your business in many ways.
Insurance agencies serve as intermediaries between insurance companies and clients. They assess clients’ insurance needs, offer advice on suitable coverage options, and facilitate the purchase of insurance policies. Insurance agencies play a critical role in providing insurance expertise, facilitating policy transactions, offering ongoing support, and assisting clients throughout the insurance process. Additionally, insurance agencies provide customer support, offer risk management advice, and help clients understand their insurance options. They stay updated on industry trends, insurance products, and regulations to provide informed guidance to their clients. If you are the owner of an insurance agency, bookkeeping services are your smoking gun to the successful and smooth functioning of your business.
Exclusivity of Financial Management for Insurance Agencies
Insurance brokerage accounting has its own set of considerations that make it unique when it comes to integrating operations and financial reporting. Whether your agency is just starting out or already established and seeking growth, it is important to ensure that your accounting and financial operations align with your overall business strategy. Here are several key topics to consider when evaluating the effectiveness of your insurance agency accounting:
Relationship Between System and Agency Size
Small brokerages often find a point-of-sale agency management system (AMS) adequate for their needs. However, for handling non-insurance transactions like payroll, prepaid expenses, fixed assets, accruals, payables, debt, equity, and treasury/banking functions, a standalone commercial ERP system, specifically a general ledger system, is more suitable. While this arrangement may incur higher costs, it offers several advantages. It ensures a clear separation between insurance operations and financial reporting, provides greater customization options for a chart of accounts, cost centers, and location tracking, and enables flexible ad hoc reporting capabilities. This setup enhances efficiency and enables more comprehensive financial management for the brokerage.
Policy and Revenue Tracking
Revenue is a critical number for any business, and insurance brokerages should keep track of each policy, by customer and producer, renewal date(s), premium, and commissions. The brokerage’s book of business is also a valuable tool to assist with budgeting and forecasting. Contingent commissions and/or guaranteed supplemental commissions (GSC) are volume-driven incentive agreements between carriers and agencies that pay the brokerage additional commissions.
Maintaining agreements on file and implementing a reliable tracking mechanism is crucial for accounting purposes. It allows for proper documentation and accurate accounting of expected contingent events and general service commissions (GSC). By having a systematic approach in place, organizations can ensure transparency, compliance, and effective management of these financial transactions.
Direct Billing Vs Agency Billing
Agency-billed policies are frequently used in commercial insurance placements, primarily due to the complexity of multiple lines of coverage. These policies offer the advantage of easier tracking and management since the agency retains control over the revenue cycle. However, they also come with certain drawbacks. On the other hand, direct-billed policies are more commonly utilized for personal lines coverage and worker’s compensation. These policies require fewer resources from the brokerage and necessitate compliance with the revenue recognition standard (ASC 606).
Under agency-billed policies, the brokerage does not receive their commissions upfront and may receive invoices from various carriers. It is crucial for accounting personnel to possess familiarity with the revenue recognition standard and appropriately accrue any earned revenue. This ensures accurate financial reporting and aligns with the guidelines outlined in ASC 606.
Producer and Agency Commissions
Producers play the role of insurance salespersons, actively seeking out potential clients and engaging them in discussions to secure coverage. Following the guidelines outlined in ASC 606, commissions earned by producers should be recorded when the coverage is officially bound. Payment to producers is contingent upon the client fulfilling their obligation of paying their policy premiums through direct or agency billing. In cases where a third-party agency is involved in the placement of coverage, the corresponding agency commissions should be recorded alongside producer commissions and disbursed as cash is collected.
Business Partnership
The finance team should view themselves as business partners across all departments. They should work with producers, brokers, and client service team members to understand the financial reporting requirements and needs of the business. They should also understand the operations side of the business and have a mutual understanding of their opportunities and challenges. By partnering together, the departments can make life easier for each other and maximize revenue, profit, and organizational efficiency.
Bookkeeping Services: Your Saviour for Precise Financial Management
You are aware of the challenges you might face as the owner of an insurance company. Let us tell you about ways in which a professional bookkeeper can help you tackle your finances efficiently.
Policy Holder Account Management
Insurance agencies have numerous policyholders with individual accounts. Bookkeeping helps track and manage policyholder accounts, including premium payments, policy updates, and any outstanding balances. It ensures accurate billing, timely reminders, and proper account reconciliation.
Reserves and Solvency Requirements
Insurance agencies are required to maintain reserves to ensure they have sufficient funds to cover potential claims. Bookkeeping assists in tracking and managing these reserves, ensuring compliance with solvency requirements set by regulators. It helps the agency monitor its financial stability and ability to meet future claim obligations.
Reinsurance Management
Insurance agencies often rely on reinsurance to transfer some of the risks they assume. Bookkeeping helps in tracking reinsurance contracts, premiums paid to reinsurers, and claims recoverable from reinsurers. Accurate bookkeeping ensures that reinsurance transactions are properly recorded and accounted for, facilitating effective risk management.
Underwriting and Risk Assessment
Bookkeeping provides valuable financial data that support underwriting and risk assessment processes. By analyzing historical financial records, insurance agencies can evaluate risks, set appropriate premium rates, and make informed decisions when accepting or renewing policies. It helps in maintaining profitability and managing risk exposure.
Commission Sharing and Reporting
In some cases, insurance agencies collaborate with other agencies or brokers to share commissions or participate in joint ventures. Bookkeeping assists in tracking and reporting commission-sharing arrangements, ensuring accurate calculations and transparent financial reporting between the parties involved.
Claims Reserve Analysis
Accurate and detailed bookkeeping allows insurance agencies to analyze their claims experience and evaluate the adequacy of claims reserves. By comparing actual claims pay-outs with the reserves initially set aside, agencies can assess the accuracy of their reserve estimates, adjust reserves as necessary, and make informed decisions regarding future claims management.
Conclusion
Managing an insurance company is not an easy task. There are several aspects that you must keep track of. And the smooth functioning of your business is ensured by precise financial management. And when it comes to finances, no one does it better than a bookkeeper. A good bookkeeper will guide you and ensure your finances are not messed up.
You can get the best bookkeepers at Remote Books Online. Our highly qualified and well-experienced professionals cater accurate and quality Bookkeeping Services to businesses all over the world. With us, you will experience hassle-free financial management at affordable prices. Hire us today and see it for yourself.
Why Choose Remote Books Online?
Your business is not bookkeeping, but ours is. Let us take care of your books for you. We have your needs covered with back bookkeeping, real-time bookkeeping, bookkeeping, and payroll services, and full-time or part-time bookkeepers, so you can get back to doing what you do best. Not only this, but we will also help you get your books up-to-date quickly and easily and ready for taxes, loans, or other transactions, for a clear picture of your business’s financial situation.
Dedicated Bookkeepers: You will be assigned a dedicated bookkeeper and meet with one of our lead accountants. (All of our dedicated lead accountants have at minimum a four-year accounting degree, and many are CPAs.)
Automated Systems: Our automated and secure web service will download your statements every month and send them to your dedicated lead bookkeeper. The bookkeeper imports the bank statements into your QuickBooks Online account or QuickBooks Desktop account, categorizing monthly transactions and preparing the necessary financial statements.
Back Bookkeeping: Behind on your books? No need to worry! Back bookkeeping services help you get fully caught up with tax-ready financials in less than a week.
Tax-Ready Financials: Remote Books Online completes your bookkeeping and financial statements for filing taxes.
Data Security: We take the security and privacy of our customers seriously. We protect your data with 256-bit SSL/TLS encryption—the same level of encryption as online banking.
Try Remote Books Online for FREE!
Remote Books Online provides the first month of bookkeeping services for free for your books and will do documentation of all transactions and essential journal entries. You can learn exactly how we relieve you of the stress and aggravation of bookkeeping by taking advantage of this free consultation. We wish to establish the foundation of a long-term relationship by giving you the opportunity to personally experience and assess our bookkeeping service and procedure.
Get the qualified bookkeeping assistance you require for your business. Speak with a representative to obtain an estimate and schedule a meeting with a Certified QuickBooks Pro Advisor to review your financial records.