Applying deposits to a renewal period

The deposit requirement is based on the total premium for a single policy period. In theory, the billing system holds the money until the period is paid in full. Alternatively, the billing system covers any final amount due and then releases the excess. If the policy does not renew, this is what happens.

When the policy renews, insurers and insureds typically want to transfer the deposit to the renewal period. They do not want to pay an additional deposit for the renewal period if the deposit on the expiring period is still held. The renewal period overlaps with the expiring period if binding occurs before the end of the expiring period. The final audit or final premium report on the expiring period may not complete until months after the period ends. During that time, in theory, collateral is necessary for any premium due on the old period and for any premium earned on the new period. In practice, some insurers are satisfied with holding only one deposit that covers both periods. In this case, the deposit from the old period does not net against the remaining amount due. Instead, the billing system bills the full additional premium, for example from an audit, for the old period and retains the deposit for the renewal period.

Typically, the insurer eventually transfers this amount to either pay off the final audit balance or applies the funds to the segregated collateral requirement of the renewal policy period.

When the released collateral moves to the renewal period, the expiring policy usually bills 12 months (full policy term) of premium reports, rather than 11. If the billing system bills only 11 premium reports on the expiring period, the billing system applies the collateral deposit to the final audit. Next, it collects separate money for the renewal collateral.

Two use cases exist:

• Deposit held for a single period – Separate deposits are required for each period, with the deposit netted against the final amount due at end of period, with any excess returned.
• Deposit held for a policy across periods – Deposit is adjusted as premiums increase or decrease from period to period. The deposit is not returned at the end of a period unless the policy is canceled or not renewed.

The base configuration BillingCenter integration handles only the first case, a deposit held for a single period. All collateral held on the account displays as segregated separately for each policy period.