When an agent or MGA collects a premium from a client on behalf of an insurer, those funds are trust money: they belong neither to the agent nor to the MGA until properly remitted to the insurer. Provincial insurance legislation requires that premium funds held in trust be:
- Maintained in a segregated trust account, separate from the agent's or MGA's operating funds
- Remitted to the insurer in accordance with the remittance schedule in the agency agreement
- Not commingled with personal or operating funds under any circumstances, even temporarily
Misappropriation of trust funds -- whether deliberate or through careless commingling -- is a serious disciplinable offence and may constitute fraud. A client whose premium is misappropriated may find themselves without coverage even after having paid.
Common mistake: depositing trust funds into an operating account with the intention of transferring them before the remittance date. Even brief commingling breaches the trust-fund obligation. The segregation must be immediate.
Recall: Why are client premiums collected by an agent classified as trust money? What must happen to those funds immediately upon receipt?