This accessibility proves invaluable for busy insurance professionals, especially those who are frequently on the move or working remotely. Accounting is an essential component of financial management for insurance agencies. By Certified Public Accountant understanding essential concepts and adopting best practices in accounting, agencies can ensure financial accuracy, compliance with regulations, and informed decision-making. Embracing accounting knowledge allows insurance agencies to streamline their operations, maintain transparency, and optimize their financial performance in a dynamic and regulated industry.

• Since February 2020, there has been a dramatic shift in the operating environment of financial markets as a result of the increased volatility caused by the COVID-19 pandemic.
• This information allows agencies to concentrate their efforts on the most profitable areas, optimizing resource allocation for maximum efficiency.
• From a security perspective, this is inherently a better arrangement and keeps non-finance personnel at an arm’s length from potentially sensitive financial data.
• Insurance agency accounting is quite unique because agencies are responsible for managing fiduciary funds.
• In addition, Agencies provide IAAB licenses to access Epic; Agencies with commission revenue less than $2.5M require one license, greater than $2.5M require two licenses.
• Most P&C agencies receive monthly commission statements in the mail each month or they can access the commission data online from the insurance company’s website.

Accounting Best Practices

The reason agencies can have bad debt even on a cash basis, is because the bad debt usually involves the fiduciary money. Because the agency is responsible for someone else’s money, it incurs bad debt even though it is on a cash basis. If the bad insurance agency accounting debt was its own money, and the agency was on a cash basis, the loss might not be deductible. The Financial Accounting Standards Board (FASB) established Accounting Standards Codification Topic 805 (ASC 805) to provide guidance on how an entity should account for the acquisition of another entity.

Utilization of Trust Accounts

It is also common for agency owners to ignore these statements and to toss them when they are received. Clients of insurance agencies can be billed two different ways, and these are typically defined as direct bill (or company bill) and agency bill. Most personal lines of insurance are handled as company bill in that the insurance company sends the bill to the customer and the customer makes the payment directly to the insurance company. For example, car and home owner insurance bills come directly from the company that is insuring the car or the home and the premium is paid directly to that company by the policy holder.

Operating Accounts and Trust Accounts

• These revenues vary, generally based on growth, the loss experience of the underlying insurance contracts, and/or efficiency in processing the business.
• If the agency does not have one of the more sophisticated management systems to track monthly commissions, it is recommended that all of the monthly commissions be entered into a simple spreadsheet as depicted below.
• The brokerage’s book of business is also a valuable tool to assist with yearly budgeting and forecasting and can dually serve as template for each producer’s commission tracking.
• While an in-depth discussion of how ASC 606 applies to insurance brokerages is beyond the scope of this document, accounting personnel should be familiar with the standard and accrue any earned revenue accordingly.
• By keeping a systematic record of all financial transactions, insurance agencies gain a clear understanding of their overall financial performance, facilitating better decision-making and fostering long-term success.

The revenues for an insurance agency can vary significantly from month to month due to irregular cyclicality of the renewals and new sales. For example, it is not uncommon for an agency to have a three or four month period of very good revenues followed by a period of significantly lower revenues. Unfortunately the deposits made during the slow months can be accidentally entered as sales revenues by the accountant, resulting in an error. We have actually had clients that paid income taxes on their own funds due to this type of error. A larger, more complex brokerage should consider purchasing a standalone commercial ERP (general ledger) system to use alongside their AMS system. First, it keeps the insurance and operations side of the business separate from the financial reporting side of the business.

• One of the primary purposes of an Income Statement is so the owner of a business can accurately analyze the sales and expenses and to show the owner whether the company made or lost money during the period being reported.
• By doing so, they can streamline their financial processes, gain real-time insights, and make well-informed decisions to drive their agency’s growth and prosperity.
• Accounting is an essential component of financial management for insurance agencies.
• In the fast-paced world of insurance agencies, where the focus often revolves around customer interactions, policy sales, and claims processing, bookkeeping might seem like a mundane and overlooked aspect.
• Get accounting & finance operators with an average of 14+ years experience to help solve critical challenges quickly & on budget today.
• It also provides an opportunity to uncover any unauthorized transactions or fraudulent activities, helping to safeguard the agency’s financial integrity.

P&C Sales Revenues

Proper bookkeeping provides valuable insights into an agency’s financial health, allowing owners and managers to make informed decisions and plan for the future. In this guide, we will explore the importance of bookkeeping for insurance agencies and provide essential tips for maintaining financial clarity and achieving long-term success. Under ASC 606, the policy effective date will now be the predominant date used for the recognition of revenue related to brokerage services based on the premise that the revenue has been earned in the placement of the policy. It will be critical for the broker or agency to identify all promises made in the contract, as revenues allocated to other performance obligations may be recognized at different times.

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