It’s important that agents understand how they’re getting paid and how the carriers manage advances and chargebacks.
With household name carriers like John Hancock, Mutual of Omaha and Americo, this is very straightforward.
Unfortunately, this straightforward process is not followed everywhere and it’s YOUR responsibility as an agent to understand how any new carrier you’re considering doing business with handles chargebacks.
We have a few agents coming from a captive agency and they’re all, at the same time, getting hit with absurd Vectors. For this one, in particular, the agent has not worked there for 4 months and in February, he received a statement from the captive agency saying he had NO debt. The agent’s Vectors now date back to 2017. This action from the captive agency is prohibiting agents from getting contacted and/or receiving advances on commissions. They have families and bills to pay, and their livelihoods are being put at risk.
What action can we take to allow these agents to continue in this line of work?
Many practice companies are all similar in the way they count agent debt. What they do is account for the advances they’re paying as a loan and create an agent account. Think of it like a VISA card. Every advance you take racks up more and more debt. Then they only give you credit against that debt for your earnings off the policies you’ve sold over your tenure that paid that month. For example, your client pays $100 that month, you’re on 50% commission, so you get credited $50 toward your agent account.
The good thing about this is that your 1099 is very small your first year. The bad thing about this is your debt balance is very high. They also then charge you interest on the loan they’ve given you. They also don’t do chargebacks on anything but cancel-at-issue policies (where the carrier gives the customer back their first month’s premium) – which artificially keeps the debt balance high over a longer period of time.
Even worse for the agents – if they leave anytime in their first 2 years, they are NOT VESTED in ANY future commissions – INCLUDING the unearned first-year commissions that would pay off their debt. All unearned commissions (both first-year commissions and renewal commissions) are reverted to their Agency Owner. So that Agency Owner not only gets their commissions that would have paid their debt off, they also can Vector them and turn them over to collections to collect the newly created bad debt.
It’s all perfectly legal and the agents agree to it when they sign their Marketing Agreements – they just don’t understand what they’re agreeing to until it’s too late, which makes it a completely unethical practice in our opinion.
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