Fiduciary Account Requirements

The following is a summary of some of the major requirements placed on an agent or broker by the New York State Insurance Department with regard to funds held in a fiduciary capacity.  If you are a member of the Professional Insurance Agents Association, you will find full details on this important subject in their Resource Kits 31024 and 06045.

Insurance agents and brokers are required by New York Insurance Law to be responsible in a fiduciary capacity for all funds received or collected as an agent or broker.

The Law prohibits insurance agents and brokers from mingling any funds held in a fiduciary capacity with any of the agent's or broker's own funds, or with funds held by the agent or broker in any other capacity, without the express consent of the entity for whom the funds are being held, in this case, the insurer or the insured ("Principal"). Exception is made for voluntary funds as noted below. Deposit of a gross premium into a premium account is not considered commingling.

The Law does not require that agents or brokers maintain a separate bank deposit for the funds of each such principal, if and so long as the funds they are holding for each principal are reasonably ascertainable from the agent's or broker's books of account and records.

New York State Insurance Department Regulation 29 requires an agent or broker who: 1) receives funds in a fiduciary capacity, and 2) does not make immediate remittance of such funds to insurers and assureds, to deposit the funds in one or more appropriately identified accounts.

These accounts typically are referred to as the agent's or broker's "premium accounts,” “fiduciary accounts" or "trust accounts.”  Such accounts must be established in a bank or banks authorized to do business in New York (i.e., not an out-of-state bank). Regulation 29 sets forth very specific rules for the types of funds that may be deposited in such accounts and for any withdrawals made from such accounts.

The name on the premium account must be the name of the agent or broker licensee and must identify the account as a "premium" account.

Besides premiums that an agent or broker has received but not yet remitted to a principal, the agent or broker may make "voluntary deposits" into a premium account. "Voluntary deposits" may be made for these purposes only:

• to maintain a minimum balance;
• to guarantee the adequacy of the account; or
• to pay premiums due but uncollected.

Withdrawals can be made from a premium account for these purposes only:

• payment of premiums to insurers;
• payment of return premiums to assureds; or
• transfer to an operating account of:
  • interest, but only if the principals have consented thereto in writing;
  • commissions; or
  • voluntary deposits

No withdrawal may be made from a premium account if the balance in the account after the withdrawal would be less than aggregate net premiums received but not remitted.

While an insurance agent or broker may advance premium monies to an insurer on behalf of an insured, the monies must not come out of the fiduciary funds contained in the premium account. Payments made on behalf of an insured are considered to be a loan by the agent or broker to the insured/  The insurer cannot cancel a policy for non payment of premium if the payment has been made by the agent or broker.*    (Details may be found in the PIA Reporter Dec. 17, 2007.)

* An exception is made in the New York Automobile Insurance Plan with regard to "bounced" checks.

The Insurance Law does not bar an insurance agent or broker from maintaining an interest-bearing premium account in a financial institution duly authorized to transact business in New York State and duly authorized to maintain such accounts by the governmental departments or agencies having jurisdiction over it.  Out-of-state financial institutions are not acceptable. These institutions include state and national banks, savings banks and state and federal savings and loan associations.  Insurance agents and brokers can maintain a premium account in a credit union provided that: 1) the credit union is located in New York State; 2) the account is protected under federal insurance limits; and 3) the regulation of the credit union would permit the account.

"Permissible investment vehicles include checking, savings, bank money-market accounts and non-negotiable certificates of deposit."

FDIC Protection Of Fiduciary Funds

Information concerning protection of fiduciary funds by the FDIC can be found in PIA's Resource Kit 31014 or by contacting D C White Agency at dcw-mktg@lancer-ins.com.