Setting up an In House Finance Company 

Product: TAM Series 6


This supplementary documentation is intended for those agencies that own and operate an in-house finance company. Although The Agency Manager does not formally support premium financing, there is a relatively simple way to partially automate the accounting functions of the subsidiary finance company. Please read this documentation completely and thoroughly prior to attempting this on your own system. If you have any questions, please feel free to contact Accounting Support at 1-800-999-6512. 


Agency Structure 

Define your agency structure with two agencies. Agency #1 is your insurance agency. Agency #2 is your subsidiary finance company.

Adding an Agency

When you are adding an agency into TAM, everyone needs to be out of the system. 

  1. Click Start, Run. Type COMMAND and click OK.
  2. Type G: and press [Enter] (where G is the drive TAM is on).
  3. CD\TAM and press [Enter].
  4. Type SYS_INST and press [Enter].

    Note:  To get into SYS_INST, you must know the Executive Usercode/Password.
  5. From the System Installation menu, choose #2:  Initial TAM Setup.
  6. From the Initial TAM Setup menu, choose #2: Install Agency Structure.
  7. From the Install Agency Structure menu, choose #2: Add/Revise Agency.
  8. Choose (A)dd from the option line and install the information for the subsidiary finance company.

Finance Companies 

Add a Finance Company for your subsidiary finance company into TAM.

Insurance Companies 

Add your agency as an insurance agency into TAM.

Install General Ledger Account 

Install an account called "Finance Interest Income" into TAM. This account should be a level A account and type 4.

While you are in this area of the program, you may wish to update your cash journals so that they are shared by all agencies. In order to do this, access your cash accounts. 

User Defined Transaction 

Set up a user-defined journal entry with the description "In-House Finance Co. Interest" (IFI for example). Define this transaction as a Miscellaneous. It should offset the Finance Interest Income account installed above.

Install Policy Types 

Set up a unique policy type for financed premiums FINA, for example. You can choose either line of business. (It does not matter.) For a Declaration page, choose None.

Customer Activity 

Any customer who has a policy financed by your subsidiary finance company must be entered in your database twice--once as an Agency One customer for his insurance policies, and a second time as an Agency Two customer for his financed premiums. Please note that the client must have a different customer number for each agency to which he belongs. 

You may want to use a numbering system for these clients that corresponds to the agency code GRISME1 for Mel Griswold under Agency One, and GRISME2 for Mel Griswold under Agency Two. You can cross reference these numbers through the Note field on the customer screen. Or, you might wish to install the clients as a conglomerate customer

Setting up the Policies 

Agency 1 

Under the Agency One customer account, set up the customer's policies in the normal fashion. Use the actual company code, producer codes, commissions, etc. 

Agency 2 

Under the Agency Two customer account, install a policy as type "FINA" (or whatever you installed the policy type above). On this policy/billing screen, enter the Effective and Expiration dates that will correspond to the client's finance contract. Use the company code that represents your insurance agency (this is the company code you entered in above) as the BCO (billing company). In the ISO field, you can use the actual company the policy is written with. Be sure to enter 0% commission in the Company commission field. 

Transacting the Policy 

Let's assume that Mel Griswold has a $10,000 Workers Compensation policy, $7,500 of which will be financed by your in-house finance company. Mel Griswold will make a $2,500 down payment and will pay 10% interest on his financed premium. 

Go to GRISME1 (the agency 1 account) and select the WC-S policy (or whatever code you have installed for a Workers Compensation policy). Under that policy, enter the following transactions: 

Through the Cash Receipts program on the General Ledger menu, enter a cash receipt to Agency One for Mel Griswold's $2,500 down payment when it is received. 

These transactions will have the following effect on Agency One's general ledger.

Transaction Account Debit Credit
  Accounts Receivable (Customer) 10,000  
  Company Payable   9,000
  Income   1,000
Cash Receipt      
  Premium Trust 1,000  
  Accounts Receivable   1,000
  Accounts Receivable (Customer)   7,500
  Accounts Receivable (Finance Company) 7,500  

Transacting the Financed Premium

Go to GRISME2 (the agency 2 account), and go to the FINA policy. Enter the following transactions: 

When the customer pays his finance premium, enter a cash receipt through Accounting, Receipts. Remember that the receipt will be for the Agency Two customer code (GRISME2). 

These transactions will have the following effect on Agency Two's general ledger.

Transaction Account Debit Credit
  Accounts Receivable (Customer) 7,500  
  Company Payable   7,500
  Accounts Receivable 750  
  Finance Interest Income   750
Cash Receipt:      
  Operating Account 8,250  
  Accounts Receivable   8,250

Finance Company Pays the Agency 

When the finance company (Agency Two) pays the agency, they will issue a check through the Cash Disbursements program. This will be a company check, as a Miscellaneous, using the company code for the insurance agency. This check will credit the operating account of the finance company, and debit its one and only company payable account, the company payable to the insurance agency. In this example the amount of the check would be $7,500. 

When the insurance agency (Agency One) receives a check from the finance company, they will deposit the check through the Cash Receipts program. This will be a Finance company receipt into the Premium Trust Account for Agency One. This deposit will debit the premium trust account of the insurance company, and credit its accounts receivable. 

Account Debit Credit
Operating Account   7,500
Company Payable 7,500  
Premium Trust Account 7,500  
Accounts Receivable (Finance Company)   7,500

Month-End Procedure 

Both agencies may run the month-end procedure normally, as instructed in the Month-End Procedure Checklist. Financial statements may then be run for either agency alone or for the two agencies combined. 

Recommended Reports 

Agency 1

Aged Receivables for Finance Companies only to determine outstanding premiums from the in-house finance company. 

Agency 2 

Account Current Report for the insurance agency's company code to determine premiums due the agency. 

Can use the Account Current Reconciliation to record payments made to the insurance agency. 

Production Reports (you can run either the Miscellaneous or the regular Production Report) for IFI transactions only to determine amount of finance interest charged. 

Transacting a Cancellation 

Transacting The Policy 

Continuing with the above client, say Mel Griswold decides to cancel his policy. At the point of cancellation, $7,000 needs to be returned, and $500 of his fee. 

Go to GRIME1 and enter a CAN for the full $7,000. You then need to get this balance over to the in-house finance company, so do a FIN for -$7000. 

These transactions will have the following effect on Agency One's general ledger.

Account Debit Credit
Accounts Receivable (Customer)   7,000
Company Payable 6,300  
Income 700  
Accounts Receivable (Customer) 7,000  
Accounts Receivable (Finance Company)   7,000

Transacting the Financed Cancellation 

Go to GRISME2 (the agency 2/finance agency account), and go to the FINA policy. Enter the CAN for $7000, and an IFI for -$500. This transaction will have the following effect on Agency Two's general ledger.

Account Debit Credit
Accounts Receivable   7,500
Company Payable 7,000  
Finance Interest Income 500  

Receiving the Returned Premium Check from the Company 

Do a cash receipt into your Agency One Premium Trust account as an Other offsetting the Company Payable. This transaction will have the following effect on Agency One's general ledger.

Account Debit Credit
Premium Trust 6,300  
Company Payable   6,300

Returning the Premium to the In-House Finance Company 

Now a return premium check must be issued to the Finance Company that has the $7000 credit on its account. Since this Finance Company is equivalent to Agency Two (your in-house Finance company), the check will then be deposited into Agency Two's bank account. You will issue a cash disbursement out of the Premium Trust account as a Finance Company disbursement/Returned Premium Check. This check then gets deposited as an Other into the cash account of your in-house finance company (Agency Two) offsetting the company payable. 

These transactions will have the following effect on Agency One.

Account Debit Credit
Premium Trust   7,000
Accounts Receivable (Finance Company) 7,000  

These transactions will have the following effect on Agency Two.

Account Debit Credit
Operating Account 7,000  
Company Payable   7,000

Issuing the Returned Premium Check to the Customer 

The final step in this situation is issuing the return premium check to the client. This check is issued out of the Agency Two cash account and offsets Agency Two's receivable account. It is done as a client return premium check. 

Account Debit Credit
Operating Account   7,500
Accounts Receivable 7,500  

Last Revised:  February 19, 2008 02:23 PM