How MGAs Should Handle Installments and Premium Finance Accounting
Installments and premium finance are common in P&C insurance. They are also a major source of accounting problems for MGAs and wholesalers. The issue is not the billing option itself. The issue is how accounting systems track premium, payments, and commissions over time.
This article explains how MGAs should handle installments and premium finance accounting, why generic systems struggle, and what a scalable approach looks like.
Why Installments Complicate Insurance Accounting
Installment billing spreads premium collection across time.
From an accounting perspective, this creates several challenges:
- Payments rarely match invoice schedules exactly
- Earned premium does not follow cash timing
- Endorsements change installment schedules mid term
- Partial payments must be allocated correctly
When accounting systems assume one invoice equals one payment, installment billing breaks the model.
What Premium Finance Adds to the Complexity
Premium finance introduces a third party into the transaction. Instead of collecting installment payments directly from the insured, the MGA receives funds from a premium finance company and manages repayment schedules separately.
Accounting must handle:
- Finance company payments
- Down payments from insureds
- Interest and fees that are not premium
- Timing differences between policy activity and cash receipt
Without insurance specific workflows, finance transactions are tracked outside the system.
Common Accounting Mistakes with Installments and Premium Finance
Treating Installments as Simple Invoices
Many teams create multiple invoices to represent installments. This creates reconciliation issues when policies change or payments arrive out of sequence. Installments are a payment plan, not separate revenue events.
Allocating Cash Without Policy Context
Payments must be allocated at the policy level. When accounting systems only track invoices, teams manually allocate cash using spreadsheets. This becomes unmanageable as volume grows.
Mixing Finance Fees with Premium
Finance fees are not premium. When fees are mixed with premium in accounting records, revenue reporting and trust balances become distorted.
How Accounting Should Handle Installments Correctly
Installment accounting should:
- Treat premium as a single obligation
- Track payment schedules separately from revenue
- Allocate payments to the correct policy periods
- Adjust schedules automatically for endorsements and cancellations
This requires policy driven accounting rather than invoice driven accounting.
Learn how insurance specific systems approach this: Installment Billing for Insurance Premium
How Accounting Should Handle Premium Finance
Premium finance accounting must:
- Separate premium from finance fees
- Track finance company receivables
- Apply payments accurately to policy balances
- Reconcile finance statements efficiently
Generic accounting systems are not designed for this.
Deep dive: Premium Finance
The Impact on Commission Accounting
Installments and premium finance affect commission timing. Commissions may be earned based on written or earned premium rather than cash received. When accounting systems rely on payment timing, commission reconciliation becomes manual.
Related reading: Direct Bill Commission Reconciliation
Why Spreadsheets Become the Backup System
Spreadsheets appear when systems cannot:
- Adjust installment schedules automatically
- Allocate partial payments correctly
- Reconcile finance company statements
- Track earned and unearned balances accurately
This creates parallel accounting processes and increases risk.
Related reading: Stop Using Spreadsheets
How Modern Premium Accounting Solves This
Modern premium accounting systems are built around policy activity.
They:
- Model installments as payment plans
- Track premium independently of payment schedules
- Apply finance payments correctly
- Automate journal entries
- Preserve a complete audit trail
This allows MGAs to scale installment and premium finance programs without increasing accounting headcount.
Explore the approach: Premium Accounting Built for P&C MGAs and Wholesalers
Key Takeaways
- Installments and premium finance complicate accounting by design
- Premium should be tracked independently of payment timing
- Finance fees must be separated from premium
- Generic accounting systems rely on manual workarounds
- Policy driven accounting handles changes automatically
- Modern premium accounting removes spreadsheet dependency
What to Read Next
- P&C Insurance Accounting for MGAs and Wholesalers
- Why MGA and Wholesale Insurance Accounting Breaks at Scale
- Agency Bill vs Direct Bill Accounting Explained
- Introducing Selectsys Premium Accounting for MGAs and Wholesalers
FAQs
Why are installments difficult to account for in insurance?
Payment timing often does not align with earned premium, and policy changes require ongoing adjustments throughout the policy term.
How is premium finance different from installment billing?
Premium finance involves a third party that pays the premium upfront while collecting payments from the insured separately.
Should MGAs treat installments as multiple invoices?
No. Installments are payment plans and should not be treated as separate revenue events.
What systems handle installment and premium finance accounting best?
Insurance-specific premium accounting systems designed around policy activity rather than invoices.
