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Trust Accounting
Insurance Trust Accounting is new. It has been developed to meet the specific needs of insurance trust account transactions. Its primary scope is to enable insurance trust managers to monitor, control and report premium financial solvency.
P&C insurance agencies currently use GL accounting primarily because all agency management systems on the market today are based on GL accounting. The major shortcoming of GL accounting application to insurance trust account operation is its inability to report the financial solvency of premium and return premium trust funds.
- The premium invoice journal entry is different from that of the GL invoice. For more information on this topic place the following link in the browser: http://www.insurancejournal.com/magazines/west/2005/09/05/features/60119.htm
- Premiums are fiduciary funds with different management standard and requirements;
- The management purpose of business operating funds is substantially different from that of insurance premium management:
- Determine tax liabilities,
- Determine a business profit or loss through periodic P&L Statements and financial solvency through Balance Sheet reporting;
- The management purpose of premium funds is to monitor and report premium financial solvency;
- Premium funds are currently included on the agency Balance Sheet, a practice that makes the reporting of premium funds financial solvency impossible.
Insurance Trust Accounting benefits from complete and accurate accounting records of premiums and return premiums and complete process automation, including:
- Premiums receivable;
- Carrier (net premium) remittance;
- Agency commission income
- Return premium credit and refunds
- Non-fiduciary funds (maintained in the trust bank account);
- Down payment and commission on Direct Bill accounts
Insurance Trust Accounting is designed to produce the following production and premium financial solvency reports:
- Trust Account Balance Sheettm
- Receipts & Disbursements Statement (Premium Float Statement)tm
- Solvency Analysistm
- Premium Float Analysistm
- Statement of Trust Funds Beneficiariestm
- Production reports
For additional information on current misapplication of GL accounting to insurance premium funds management place the following links in the browser:
http://www.insurancejournal.com/magazines/west/2005/12/05/features/63462.htm
http://www.insurancejournal.com/magazines/west/2006/03/20/features/68710.htm
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