Premium management outsourcing is a new concept in the P&C insurance industry. The trust account operation is so complex and so labor intensive that nobody thinks it is possible to outsource it. New computer technology has been developed to change this perception and bring this industry’s performance in line with what other industries have already achieved during the past two decades.
To understand this concept one must consider the ADP payroll service. Agencies provide source documents to ADP so that ADP can prepare payroll checks and instruct agencies on when and how much payroll taxes to sent to IRS.
Separate Premium Management
To outsource premium management an agency must be able to separate the management of premium funds from that of operating funds. In current practice this separation cannot be achieved. It can be accomplished only by using insurance premium accounting and new solvency management techniques. Professionals need to be trained and certified in the use of new technology then take charge of premium funds management. These professionals may be either employed by client-agencies or outsourced.
As in the payroll service, a client-agency will provide source documents to insurance premium management (IPM) professionals. IPM professionals will be able to manage premium funds from the time they are transacted until they are disbursed. The essence of IPM professionals’ job is to receive transacted premiums from insureds and then tell the agency (a) what net premium to remit to insurance carriers and (b) what earned commissions to transfer to the operating account.
By using new technology IPM professionals will be able to provide documentary evidence of premium funds solvency to agency managers, carriers, auditors and regulators.