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NAIC Creates Premium Pass-Through Accounts Task Force

The NAIC's fraud task force chair announced that the task force will be considering model legislation during 2003 to prohibit commingling of funds by agents....
December 16, 2002

The NAIC's fraud task force chair announced that the task force will be considering model legislation during 2003 to prohibit commingling of funds by agents. This action was prompted by the increasing number of agencies getting themselves in trouble in states that allow commingling.

Prior to the meeting, PIA's Senior Vice President Patricia Borowski spoke with the chair about this issue. As a result of those conversations, the chair agreed to pursue a New York- type model, which is a type of insurance premium pass-through trust account process.

Agencies must segregate their accounts, that is open a single premium account in an FDIC- insured institution. All premiums for all carriers/clients go into this single premium account. These monies are accounted for by the agent and carrier, and held in the interest of each carrier. With the agreement of the carrier, agencies can retain their commissions in these accounts, as well as earn and retain the interest from the full account. (PIA of NY advises us that all carriers have agreed to this procedure). There is an obligation between the producer & carrier(s) for the producer to be fully obligated for those funds even if the bank goes under.

This type of arrangement gives the "trust" aspect fraud departments seek, but respects it as an insurance premium pass-through.  Furthermore, it uses the existing FDIC as well as the traditional insurance premium accounts language. This is tougher than commingling or simple segregated premium funds, but is far less onerous than other proposals.

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