Agency Bill or Direct Bill: It Pays to Prepare for Both

By Anamaria Cifuentes posted 10-24-2022 10:33

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Are you a brokerage expanding into new lines? Or are you simply looking for ways to bind policies, get paid, and/or move funds across the industry faster? A key consideration is how your policies are billed. Let’s quickly review the basics:

Direct bill means the insurance carrier bills the policyholder and the policyholder pays the carrier directly. In agency bill, the agency bills the insured, collects the premium payment(s) and pays their MGA or the carrier.

According to Gabe Nix, Enterprise Sales Executive at ePayPolicy, the vast majority of personal lines today are direct bill. He says, “Anything that is highly transactional (i.e., personal lines) is usually direct billed by the insurance carrier.”

Outside of standard commercial lines, insurance is typically sold through MGAs and wholesalers and is almost always agency billed. The choice of billing is up to the carrier or the MGA, not the agency. If the insurance carrier isn’t going to do it, the MGA passes the collection responsibility downstream to the agency.

Gabe ran his own retail agency before joining ePayPolicy. He knows the work required to collect and correctly account for payments. He notes, “Sometimes agencies have to forward the full amount and have to wait for their commission. It’s an onerous task.”

Be prepared for insurance company changes
It’s not uncommon that insurance companies make changes in terms of billing.

According to Gabe, the billing piece can be “fluid” and a lot of policies that are now direct bill may ultimately become agency bill. Why? “We’re in a hard market right now. Insurers want to take less risk.” A previously placed policy might be considered too risky right now. You may have to find a new carrier or your current carrier may push billing down to the MGA/wholesaler and thus the agency.

“You need to have a solution in place for agency bill, because a carrier can change. I think it’s necessary to have an option for policyholders to be able to pay you instead. If things shift away from direct bill (and this is not as unlikely as it may sound), the retail side needs to be ready.”

Even with traditionally direct bill policies, agencies may want to have an option for High Net Worth or other niche divisions where types of billing can make or break the customer experience.

The time may come when carriers decide even their personal lines would be better off agency bill. Gabe cited an example of a provider of specialized commercial insurance and personal lines. “They accept credit cards. They hated the fact that they had to work with payment card processors. There was a push for the payment exposure to get onto the agency.”

Gabe says, “We’re available to help anybody in the insurance industry that has to process or receive payments. We don’t want anyone to be caught off guard.” ePayPolicy also has the ability to pass the fees, not just absorb.

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