Setting up an In-House Finance Company

Product: The Agency Manager, Series 7 and above

Overview

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 before attempting this on your own system. If you have any questions, please feel free to contact Accounting Support at 1-800-999-6512.

Setup

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 add an agency into TAM, everyone must be out of the system.

  1. Click Start, All Programs, Applied Systems, Utility Manager.
  2. Log into the Utility Manager.
  3. Select the Accounting folder.
  4. Select the Setup folder.
  5. Select Add, Revise, View Agency Structure and click the continue arrow.
  6. Select Install Agency Structure and click Next.
  7. Click the Add button.
  8. On the Choose Item screen, select Add an agency and click OK.
  9. Enter the subsidiary finance company information for the new agency in the enabled fields on the right side of the screen and click OK.

Finance Companies 

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

Insurance Companies 

Add your agency as an insurance company 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. 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 with a Miscellaneous flag. 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. For a Declaration page, choose None.

Customer Activity 

You must enter any customer who has a policy financed by your subsidiary finance company 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.

Set 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 which 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 ICO field, you can use the actual company the policy is written with. Be sure to enter 0% commission for the Company commission field.

Transact 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 One 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

NEW

 

 

 

 

Accounts Receivable (Customer)

10,000

 

 

Company Payable

 

9,000

 

Income

 

1,000

Cash Receipt

 

 

 

 

Premium Trust

2,500

 

 

Accounts Receivable

 

2,500

FIN

 

 

 

 

Accounts Receivable (Customer)

 

7,500

 

Accounts Receivable (Finance Company)

7,500

 

Transacting the Financed Premium 

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

When the customer pays the 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

NEW

 

 

 

 

Accounts Receivable (Customer

7,500

 

 

Company Payables

 

7,500

IFI

 

 

 

 

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

7,500

 

Accounts Receivable

 

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

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

Agency 2

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

Run the Account Current Reconciliation to record payments made to the insurance agency.

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

Transact a Cancellation

Transact 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 GRISME1 and enter a CAN for the full $7,000. To transfer this balance to the in-house finance company, 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 Two/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

Issue a return premium check 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 be deposited into Agency Two's bank account. Issue a cash disbursement from the Premium Trust account as a Finance Company disbursement/Returned Premium Check. This check 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

Issue the Returned Premium Check to the Customer

Finally, you must issue the return premium check to the client. This check is issued from your Agency Two cash account and offsets your 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 27, 2009 02:39 PM

SWE32006