We have been looking at establishing disciplined processes within the agency as a means to improve client retention and build internal morale. Moving on, this month's column details the claims and financial areas.

The claims department supports all production and servicing activities and contributes to maximizing client retention by delivering outstanding claims service, from the time of loss or damage until final resolution. While liability and workers' compensation claims cannot be ignored, the emphasis in the agency should be on first-party claims responsiveness.

To lay the groundwork for this approach, every new client should receive a “welcome” letter, which explains that the claims department is available to help at time of loss, and a “claims kit.” This kit is a valuable tool in building client loyalty at the outset of the agency relationship. It should contain a few workers' compensation, general liability and auto claims forms and, most important, instructions for reporting claims.

Many third-party claims are reported directly to insurance carriers. If that is the case, you should enclose in the kit a sheet of reporting instructions, including relevant fax and phone numbers. Separate sheets for property and auto claims should set forth clear instructions as to how the claim should be reported, to whom and what information should be secured before reporting.

The agency should have clear guidelines as to what will happen when they receive a first-party claim. One agency's guidelines:

• All claims received will be reported to the carrier within one business day, except for those that we pay under our draft authority.
• We will initiate a personal contact with our insured within four business days of receipt of a first-party claim.
• Thereafter, one contact with our insured will take place during the first week and then at least bi-weekly thereafter, until the claim is resolved and payment made.

You can set up whatever time frames suit you best, but instituting this kind of process and sticking to it ensures that your clients know you're interested in their claims and not just your commissions. It also avoids the persistent problem of poor communication between the adjuster and the insured, sometimes with the result that each one is waiting for something from the other.

For larger accounts, review the claims handling procedures with the client, either in person or on the phone. If there is claims activity, a quarterly or semi-annual visit can be set up to make sure everything is proceeding smoothly.

For third-party claims, make sure that a reported claim is rapidly transmitted to the carrier. Assist the client in developing names of witnesses or other facts that may help the carrier provide an effective defense. And emphasize to clients the importance of promptly sending you any legal papers or letters they receive, and to cooperate only with your carrier's representatives.

There is no area of agency operations that will suffer more from a lack of disciplined processes than the handling of financial matters. There are 5 major areas within this topic that need to be addressed:

• Credit policy
• Underwriters payable reconciliation
• Payroll
• Expense reimbursement
• Legal collection.

This month's column will discuss the first of these, with the balance to follow in the June issue.

Credit policies

Having an established credit policy for the agency may sound simple, but it actually requires looking at several aspects:

• Premium collection responsibility
• Acceptable payment arrangements
• Collection control
• Invoicing schedule
• Payment/collection schedule
• Dishonored checks.

Direct-billed policies require their own set of guidelines.

1. Premium collection responsibility. Your agency policy should make it clear who has the primary responsibility for the collection of premium: the producer, the CSR or the accounting department. We strongly suggest that it rest with the producer because his or her income is directly affected by unpaid premiums. However, the accounting department should provide the necessary support to help the producer meet that responsibility. The CSR can also help in a support and communication role. The producer should explain the agency's credit policy at the time of the initial or renewal sale and obtain a payment arrangement commitment from the insured.
2. Acceptable payment arrangements. There are really only three normally acceptable payment arrangements: annual premium paid in full, annual premium financed through a premium finance company, or installment payment plan from the insurance carrier. Any deviation from these arrangements should be rare, approved by the agency principal and documented.
3. Collection control. This is a function of the accounting department. Personnel should continuously monitor receivable balances and maintain client contact to stimulate on-time remittances and uncover any problems. When required, they should initiate cancellation procedures after consultation with the producer, especially if the agency is on an accounts current basis with the carrier.
4. Invoicing schedule. It is most important to adhere to a specific schedule because everything involved in the premium collection process is date-sensitive. A suggested schedule might look like: New business: On the effective date of binding, if possible, but in no event later than 24 hours of binding date. Use a binder number if the policy number is not available.Endorsements/audits: Within 3 business days after the endorsement/audit is received in the office. This puts pressure on those involved in approving endorsements or audits before they are billed.Renewals: 30 days prior to expiration, using preliminary or estimated invoicing where necessary.
5. Payment/collection schedule. The producer should arrange with the client the desired payment arrangement acceptable to the agency and communicate it to the CSR and accounting department. Deviations (via a “payment exception form”) should be approved by a manager or agency principal. Follow this schedule: • Payment in advance must be made for any assigned risk premiums (workers' compensation, auto or property).• For any new account, a payment from the client of at least 20 percent of the estimated annual premium for all coverages is required at the time of binding.• Unpaid billed premiums will be automatically flagged for collection letters (first letter 10 days after the due date; 20 days after the due date for second letter). Five days after the second letter, accounting will request the carrier to issue cancellation notice, notifying the producer and the CSR.• Cancellation will not be requested by accounting on endorsements of less than $150, unless there are multiple overdue endorsement balances exceeding $250 at month-end.• Reinstatement will be issued if the required payment is received before the effective date of cancellation, because insurance regulations require such action. However, because the cancellation/reinstatement process is time consuming and possibly indicative of client financial problems, the agency and/or the carrier may elect not to renew coverage for the client upon expiration.
6. Dishonored checks. You should treat the return of a check for insufficient funds as a serious matter requiring immediate attention. It re-creates a receivable previously thought to have been paid and, more important, may signal a severe financial problem on the part of the client. It should never be viewed as an annoyance that goes away when the check is routinely redeposited. Here is how one agency deals with dishonored checks:• As soon as accounting becomes aware of a dishonored check, they must immediately notify the producer and the CSR.• Accounting will immediately debit the client's account for the dishonored check amount.• Dishonored checks will not be re-deposited. Rather, the client has 3 business days to supply cash, a money order or certified check to replace the dishonored check. Accounting will notify the client as to this procedure. The producer should assist.• On the fourth business day, accounting will fax or e-mail a request for cancellation to the carrier if the replacement funds have not been provided.• Accounting is to keep the dishonored check until the client provides replacement funds. At that time, a photocopy of the check should be retained, with the check itself sent to the client.• If a second dishonored check is received during a 12-month period, a manager or agency principal will either initiate cancellation or refuse renewal, following appropriate regulatory requirements. If the agency decides to keep the client, accept only cash, money order or certified check from them for the next calendar year.

In any of these processes, you can substitute your own time frames and who should be kept in the loop. But the point is to have a disciplined process instead of dealing individually with each situation as it occurs. That way, you won't waste time and a consistent policy, known to all, will result in smoother operations.