Processing renewals (months or periods after month 1) is the same as processing the first Transaction with two major differences. The first difference is the Agents and Rates come from the Commission Distribution stored in the Policy. So, if the Agent gets promoted to a more favorable contract and now reports to a different person, new Policies will use the current details, but previous Policies will continue to be paid according to the details when the Agent sold the Policy. The second difference is that for Tenants that use Advances, there is a process applied to track and earn back the debit balance associated with Advances.
The ‘debit balance’ from Advances is managed in two elements. One is in the Policy, which is referred to the ‘Debit Balance’ in the Policy. The other is an ‘Agent Balance’ which is the sum of all their Debit Balances from the policies they are associated with, subject to effects of any Adjustments.
Debit Balances in Policies
The system saves or calculates the Debit Balance for each Agent associated with a Policy. The Debit Balance is the product of the Advanced Amount less Advance Recovery. If an Agent got $600 from an Advance representing a 6-month Advance, and the Policyholder cancelled the Policy 2 months in, the Carrier will usually send a Chargeback to receive 4 months commissions ($400) back. So, the Debit Balance in this example is $400: Advance $600 less $200 from Advance Recovery.
The Policy Debit Balance by Agent import can also be used to bring in the Advance and Advance Recovery values to store the Debit balance details in Converted Policies that had the Advance processed in a legacy system.
Advance Recovery is calculated each cycle for a Policy if the Agent still has a Debit Balance in the Policy. Commissions go to Advance Recovery and until the Debit Balance reaches $0.00. After the Debit Balance reaches $0.00, the commissions are applied to Earned Commission, which then goes to Net. For Policies or specific Agents that are set to pay ‘As Earned,’ where there is no Advance paid, from the first Transaction the commissions are always applied to Earned Commission. Advance Recovery and Earned Commission fields are displayed in the Results page of a Cycle to Admin, and in the Agent Statements to Agents.
Viewing the Debit Balance in a Policy: There currently is not a page or report to display the Policy Debit balance values, however if you start the process to create a Chargeback, (enter Policy and click ‘Create’ but not Save the values to actually create a Chargeback), it will show the values for Advance, Advance Recovery, and the Chargeback amount is the Debit Balance.
Agent Balance
The consolidated amount resulting from the Advances and Advance Recovery of the Policy activity is referred to as the ‘Agent Balance.’ When there have not been any Adjustments, the sum of all the Policy Debit Balances for the Agent should equal their Agent Balance.
The Summary Page of the Cycle has fields that summarize the Agent Balance details.
- The Beginning Agent Balance reflects the Ending Agent Balance from the last cycle but could also include any Agent Balance imports after that last cycle.
- New Advances is the amount received from Advances for the Agent this Cycle. This amount will equal the sum of the Advances displayed in the Results page of the cycle.
- Advanced Recovery is the amount received for recovering Advances. This amount will equal the sum of the Advance Recovery amounts displayed in the Results page of the cycle.
- Ending Agent Balance starts with Beginning Agent Balance + New Advances – Advance Recovery but is also reduced by Chargebacks and can include the effect of any Adjustments that have ‘Apply to Agent Balance checked. (Note: there are two rare scenarios than can affect Ending Agent Balance, Balance Increase when commissions are negative, and Net Increase when there more Advance Recovery than Agent Balance. See additional details below or in the Commission Closed Runs section for more details.)
Portion of Summary page that displays details relating to Agent Balance
Additional Information on Agent Balance:
Chargebacks reduce Net, 1099, and Agent Balance. If there is not enough Net or Agent Balance to be reduced for a Chargeback, it cannot be applied to the Cycle.
Some Tenants may want to limit the overall risk from an Agent with an exceedingly high Agent Balance. If the Ending Agent is monitored and depending on any contractual arrangements made by the company, if that Balance gets to specified point, the company may want to use Custom Settings to limit the number of months for Advances. Another alternative is to have the Agent ‘buy back’ a portion of their Agent Balance by an Adjustment with Apply to Agent Balance and Apply to Net both checked. That type of Adjustment would reduce their current check the Agent got paid but pay down a portion of the outstanding obligation represented by the Agent Balance.
If Net in the Summary should be reduced to be below $0.00 the system will instead increase Agent Balance. The final Net amount in a Summary cannot go below $0.00. There are scenarios where a commission can reduce the net amount, for example, for Premium corrections. If an initial Premium in a Transaction was incorrect for example $1000 and should have been $500, a new Transaction could be created for -$500. The Commissions would be a negative number for Net in the Results page of the cycle, and if there was not enough other Commissions to have the total Net cover it, the system instead would increase the Agent Balance. Once the cycle is closed, if this situation occurred, there would be a value in a field called Balance Increase displayed in the Summary of the Closed cycle.
In the case of values in Balance Increase, an Admin may choose to create an Adjustment with Net and Agent Balance checked for the Agent to pay back that debit amount in a future cycle.
Summary in closed commission cycle with negative commissions example for ‘Balance Increase’:
If the amount of Advanced Recovery would cause Ending Agent Balance to be less than $0.00, the system will convert the amount that would have made Agent Balance go below zero, to increase Net. If you were to think of Agent Balance as being like your credit card, if your balance were $0.00, and you paid more than what your balance was, the card company would give you a refund of that amount. So, if Beginning Agent Balance is $0, there were no Advances, and Advance Recovery was $200 since the system will not allow Agent Balance to be a negative number (-$200), instead the Agent would have their Net increased by $200. (This is the same situation for an Adjustment with ‘Apply to Agent Balance’ checked that would decrease Agent Balance below $0.00 in a comparable way.) Once the cycle is closed, if this situation occurred, in the summary page for that closed run a value would display in a field called Net Increase.
Summary in closed commission cycle with not enough Agent Balance example for ‘Net Increase’:
Amounts in Balance Increase and Net Increase will only be displayed in closed commission runs. The Agent Balance in an open commission run is fluid and affected by applying Chargebacks and Adjustments, so it is only after a cycle is closed that those fields are displayed in the closed cycle Summary page. The sum of Balance Increase and Net Increase is used in the Agent Balance by Issuer report so that the total from that report can match the Ending Agent Balance in the cycles.
When an Agent leaves a company, consideration needs to be made on their Agent Balance. If the Agent will still be receiving Commissions after they leave the Company, creating Adjustments to ‘pay off’ their Agent Balance first may be desired, rather than take a longer period for all to be recovered.
A feature useful in managing Agent Balance is the Auto Lapse/Auto Chargeback feature. Having this setting turned on means that if a Policy has advances that are not fully recovered, the Issuer did not send a request for a Chargeback, and future commissions (Transactions) do not come in, the system can automatically create Chargebacks for the debit balances (portions of Advances that were not fully recovered.) See the section for that feature for more details.