GIGI 2.2 Holding money as agent of an insurance company

When a firm acts as agent for an insurance company (to receive and handle premiums, claims money or premium refunds) the insurance company bears the risk for any losses that may arisefrom the failure of the firm to make a transfer ofthese funds. Such failure could occur, for example, because the money is misappropriated by the firm (or by a third party the firm passed the money to) or it is lost through either party's insolvency. When the insurance company bears the risk of such losses, the industry often refers to this as 'risk transfer'. Money held as agent for an insurance company is not client money under our rules, so the firm must not hold it in a segregated client money bank account (but see paragraph 2.2.5 below).

Rules and guidance dealing with holding money as agent of an insurance company are in Chapter 5.2 of CASS.

If your firm holds money as agent for an insurance company, it must enter into a written agreement with the insurance company stating that premiums, and if the insurer so wishes claims and premiums refunds, are held as its agent (see paragraphs 2.2.7 to 2.2.9 for details on written agreements). Your firm must keep a copy of any such agreement for a minimum of six years following the date it is terminated.

In addition, where your firm holds money as agent of an insurance company it must notify any clients through its terms of business if their money is to be held as agent.

Your firm might hold some of its customers' funds as agent for an insurance company, while in its dealings with other customers it might not act as agent for an insurance company. In these circumstances it would have to hold money received from the second group of customers as client money in a segregated bank account. We are aware that this is changed practice for most firms who up to now will have held most of their receipts (from all sources) in an "IBA account". When your firm is holding money as agent of an insurance company, the insurance company may specify in the terms of the agency agreement the required banking arrangements. However, provided the insurance company does not specify banking arrangements to the contrary, until 14 January 2006, we will temporarily allow your firm to hold money received as agent of an insurance company in the segregated client money bank account.

For further details on receiving and holding client money, see paragraph 2.3.1.

A firm will often have contractual authority to commit an insurance company to risk, i.e. the firm is authorised by the insurance company to enter into an insurance contract on the insurance company's behalf. Such an agreement is often referred to as a "binding authority agreement". Our rules require that binding authorities of this kind state that the firm acts as the agent of the insurance company for the purposes of:

1. (1)

   receiving and holding premiums (if the firm has authority to commit the insurance company to risk);

2. (2)

   claims money (if the firm has authority to settle claims on behalf of the insurance company); and

3. (3)

   premium refunds (if the firm has authority to make refunds of premiums on behalf of the insurance company).

It is also possible that other kinds of agency agreements that do not give a firm authority to commit an insurance company to risk may nevertheless result in them holding premiums or handling claims and refunds of premiums as an insurance company's agent. If, for example, the terms of such an agency agreement make the firm the agent of the insurance company to collect and receive premiums, the agreement will result in a transfer of risk in relation to the premium to the insurance company

Some agency agreements between a firm and an insurance company may do no more than facilitate the introduction of business to an insurance company. These types of agreement are unlikely to result in the firm holding money as agent of the insurance company. If your firm is in any doubt as to whether it is holding money as agent it should consult the terms of its written agreements or terms of business with insurance companies and, if necessary, seek clarification with the relevant insurance companies.

A firm may extend or sub-delegate its authority to hold money as agent of an insurance company to another directly authorised firm or an Appointed Representative. This is provided it has the insurance company's written agreement to do so and that this written agreement names the firm acting as sub-agent.