When a firm acts as agent for an insurance company (to receive and handle premiums, claims money or premium refunds), the insurance company bears the risk for any losses arising from the failure of the firm to transfer these funds. Such failure could occur, for example, because the money is misappropriated by the firm (or by a third party the firm passed the money to) or it is lost through either party's insolvency. When the insurance company bears the risk of such losses, the industry often refers to this as 'risk transfer'.
Money held as agent for an insurance company is not client money under our rules but it may be held or co-mingled with client money (but not on its own) on trust in a client bank account. Once co-mingled, all the money in the client bank account must be held and treated as client money in line with CASS 5.3 to CASS 5.6.
Firms should note that they will be permitted to co-mingle only if they obtain the relevant insurance company's written agreement in line with CASS 5.1.5A R and (from 14 July 2005) the insurance company's written consent and acceptance that its interest under the trust is subordinated to that of the firm's clients.
If your firm holds money as agent for an insurance company, it must enter into a written agreement with the insurance company stating that premiums and - if the insurer so wishes - claims and premiums refunds, are held as its agent in line with CASS 5.2.3 R (see paragraphs 2.2.8 to 2.2.10 for details on written agreements). Your firm must keep a copy of any such agency agreement for a minimum of six years following the date it is terminated.
When your firm is holding money as agent of an insurance company, the insurance company may specify in the terms of the agency agreement under CASS 5.2.3 R the bank account the money must be held in. So the insurer might stipulate that money collected by your firm should be held in a separate bank account for its sole benefit. Alternatively, it may specify that the money is to be held or co-mingled as described in paragraphs 2.2.3 and 2.2.4. In this case, the money can be held on trust in your firm's client bank account. For further details on receiving and holding client money, see section 2.3.
A firm will often have contractual authority to commit an insurance company to risk, i.e. the firm is authorised by the insurance company to enter into an insurance contract on the insurance company's behalf. Such an agreement is often referred to as a 'binding authority agreement'. Our rules require that binding authorities of this kind state that the firm acts as the agent of the insurance company for the purposes of:
receiving and holding premiums (if the firm has authority to commit the insurance company to risk);
claims money (if the firm has authority to settle claims on behalf of the insurance company); and/or
premium refunds (if the firm has authority to make refunds of premiums on behalf of the insurance company).
Other kinds of agency agreements that do not give a firm authority to commit an insurance company to risk may still result in a firm holding premiums or handling claims and refunds of premiums as an insurance company's agent. If, for example, the terms of such an agency agreement make the firm the agent of the insurance company to collect and receive premiums, the agreement will result in risk relating to the premium being transferred to the insurance company.
Some agency agreements between a firm and an insurance company may do no more than facilitate the introduction of business to an insurance company. These types of agreement are unlikely to result in the firm holding money as agent of the insurance company. If your firm is in any doubt on whether it is holding money as agent, you should consult the terms of your written agreements or terms of business with insurance companies. And, if necessary, you should seek clarification with the relevant insurance companies.
A firm may, with the consent of the insurance company, include in its written agency agreement a provision for money received by its appointed representatives, field representatives and other agents to also be held as the insurance company's agent. So a single agency agreement under CASS 5.2.3 R may authorise the firm and its agents to hold money as agent of the insurer. With the consent of the insurance company, your firm may also include in its written agency agreement under CASS 5.2.3 R an endorsement authorising another firm that is its counterparty to a transaction (but not its appointed representative or agent) to hold money as agent of the insurance company.