And don't expect the DOI to treat the occasional noncompliance with a nod and a wink, Davis warned; the DOI makes you accountable for literally every penny in the account. In Illinois, for example, an agency with a first offense faces a Class A misdemeanor and a $150 fine. Multiple offenses can result in jail time and a minimum of $1,000 per day if your account is out of trust - even if the account has a surplus. In 2006, the average out-of-trust penalty in the state was $18,000.

How does it happen?
The opportunities to go out of trust are myriad. The most common involve:
o Changes or credits from endorsements/removal of coverage from policy
o Clients who want an immediate refund for unbound coverage - which can't be done until the payment clears the books
o Policy cancellations -Refunds must be made 15 days after the policy is reconciled
o Using operating funds to refund customer or pay premium - this makes the agency an unlicensed bank
o Fronting existing clients their premium
o Using Client A's money to pay Client B's premium

Modern electronic banking methods are another way that agencies are at risk of being out of trust. For example, if an agency deposits funds with their bank twice a week, and a client pays with a check after a bank deposit is made, the agency will be out of trust if the insurer electronically "sweeps" the agency's account to collect the payment. DOI requirements mandate that the client's check be deposited to the bank the same day it is received.

Although roughly 25 percent of agencies have separate sweep accounts to prevent these problems, sweep accounts must be reconciled at the end of every month, and under law cannot be interest-bearing accounts.

Commissions are another potential trouble area. After all insurer statements are reconciled, agents must pay themselves the appropriate commission. And of course, agencies cannot collect commission money until they have paid their companies, Davis cautioned.

Unfortunately, there is no consistency on laws and regulations addressing PTFA issues.
For example, although the Wisconsin DOI imposes more stringent penalties than the Illinois department, the state does not have a PTFA law--while Illinois has both a PTFA law and DOI regulations. Confusion comes in when agents licensed in a state without PTFA laws must comply with the laws when doing business in a state with PTFA laws.

To help prevent getting into trouble, Davis recommended retaining records and documents for seven years and posting transactions at least every 30 days. Under law, agents that hold PTFA for more than 14 days must have signed authorization from the customer.

What about service fees?
Agencies can use service fees to drive business more profitably to different payment plans such as credit cards and eliminating walk-in payments. But charging service fees can also be an area for concern.

Under most current state laws and regulations, service fees:

o Must be "reasonable"
o Must be disclosed in writing before the policy is purchased
o Require insured's signature if the fee is greater than or equal to 10 percent of premium
o Cannot be charged on FAIR plan coverage
o Must be disclosed as a "service" not "policy" fee
o Pro rated portion must be returned to insured if the policy cancels within 90 days

Service fees must be held in a separate account, then moved once a month to the agency's operations account, Davis said. Last year his agency's service fees added up to a six-figure amount, which was split among the agency's employees as a bonus at the end of the year.