Oregon Producer Trust Accounts, Commissions, Fees and Records

A producer handles other people’s money. Oregon treats premiums as money held in trust, limits what a producer may charge on top of a commission, and requires the records of every transaction to be kept where the Director can examine them. This chapter covers each of those rules.

Producer regulation

Fiduciary and trust account responsibilities (ORS 744.083; OAR 836-074-0020 to 0050)

Premiums are held in trust. All premium funds a producer receives under any policy are received in the producer’s fiduciary capacity (OAR 836-074-0020(7)). Premium funds include premiums, return premiums, return premium credits, policy fees and premium taxes.

A separate trust account (ORS 744.083). A resident producer accounts for and keeps all premium funds in a trust account separate from all other business and personal funds, and may not commingle premiums with any other money. The one exception: a producer may add its own funds to the trust account for advancing premiums, keeping a reserve for paying return premiums, or other contingencies in receiving and sending premiums, and to cover bank charges (OAR 836-074-0035).

Financial institutions and trust companies are exempt (ORS 744.083(4)), as are producers who are exclusively salaried employees of an insurer (OAR 836-074-0017). A producer with an average monthly premium balance of at least $2 million over the last 12 months may keep a federally insured certificate of deposit for at least that amount instead of a trust account (ORS 744.084).

The trust account rules (OAR 836-074-0020 to 0050).

• Location and type: each trust account is kept in Oregon, unless the Director gives written permission to keep it elsewhere. It is a federally insured bank or credit union account, or a qualifying government-securities or money market account, and the funds must be readily available to pay premiums when due
• Marked and open to audit: every check drawn on the account must identify it as an insurance premium funds trust account. The Director may examine and audit any trust account and its records, at the producer’s expense if they are kept outside Oregon
• Deposit deadline: premium funds are deposited no later than the seventh day after they are received
• Money owed to the insured: return premiums, and the producer’s share of premium that must be refunded, including unearned commission, are paid to the insured no later than the 30th day after the producer receives them
• Checks payable to the insurer: a premium check made payable to the insurer (or another producer, a surplus lines licensee or a premium finance company) may be forwarded directly without depositing it, if that needs no endorsement or alteration
• Cash without a trust account: a producer whose business involves no transactions requiring a trust account must give a receipt for cash showing the amount, date, policy number and policyholder, within 72 hours convert the cash to a money order, certified check or cashier’s check payable to the insurer and forward it, and keep records of the cash received and forwarded
• Taking commissions out: a producer may move its gross commissions from the trust account to its operating account
• No paying out what never came in: a producer may not pay premiums from the trust account that were never paid into it. A producer may advance a return premium to the insured from its own funds outside the trust account while it waits for the insurer’s credit, and transfer the advance back out once the credit is put in the trust account (OAR 836-074-0030)
• Interest: the account may bear interest. Unless the insurer agrees otherwise, the producer may keep the interest to offset bank charges or move it to its operating account
• Records: the producer keeps records of premium funds that allow any transaction to be traced from its source to its final entry, as double-entry bookkeeping does. The records are available in Oregon for the Director’s inspection on demand, for three years after the policy expires
• Affiliated producers: an agency may use one trust account for the funds of the producers operating under its license. An insurer may impose stricter trust account requirements on its own producers

Improperly withholding, misappropriating or converting money received in the insurance business is grounds for license discipline (ORS 744.074(1)(d)).

Commissions (ORS 744.076, 744.077; OAR 836-071-0269 to 0277)

Who may be paid (ORS 744.076).

• An insurer or producer may not pay a commission, service fee, brokerage or other valuable consideration for selling, soliciting or negotiating insurance in Oregon to a person who is required to be licensed as a producer and is not licensed. That person may not accept it either
• Renewal and other deferred commissions may be paid to a person who was licensed when the sale was made, even if the license later lapses
• Commissions may be paid or assigned to an insurance agency, or to persons who do not sell, solicit or negotiate insurance, unless the payment would be an unlawful rebate

Commission only, as a rule (ORS 744.077). A producer who is not also licensed as an insurance consultant may receive only commission, unless a rule provides otherwise. The Director’s service fee rules are the main such rule (OAR 836-071-0269 to 0277, below).

Personal lines. On personal lines of insurance, the Director has found that the public reasonably considers every charge made by the insurer or its producer to be either premium or a premium financing charge (OAR 836-071-0269). That is why a producer’s own fees are tightly limited on personal lines.

Fees (ORS 744.076, 744.077; OAR 836-071-0260 to 0277)

Commission, fee or both, by agreement (ORS 744.091). ORS 744.091 lets an insurer or producer charge a commission, a service fee, or a combination of the two on insurance outside these three categories:

• Insurance covering an individual’s person, property or liability
• Life or health insurance for groups of fewer than 51 lives
• Insurance on a commercial or public entity paying combined annual premiums of less than $100,000

A commission or service fee other than the one filed with the insurer’s rates may be charged only under a written agreement with the prospective insured before the policy is bound or issued. A producer who uses such an agreement is not violating the rebating and inducement laws. Inside the three categories, the ordinary rules apply: a producer is paid by commission (ORS 744.077), and any service fee must meet the service fee rules below.

Service fees (OAR 836-071-0272 to 0277). A service fee is a charge a producer makes, in an insurance transaction, to a party other than the insurer that is not part of the insurer’s filed rate. Premium finance charges are not service fees. The service fee rules do not apply to life, mortgage or title insurance.

• Individual coverage: a service fee may not be charged on insurance covering an individual’s person, property or liability. Coverage of several members of the same family or household still counts as individual coverage (OAR 836-071-0274)
• Other coverage: a service fee may be charged on other insurance, such as commercial coverage. Outside the ORS 744.091 and 744.093 arrangements, the producer must have provided service beyond the usual and customary practice of producers in similar circumstances. In every case, the producer gives the person charged a written explanation of the charge and the reason for it (OAR 836-071-0277)
• Never for arranging the financing of premium payments

Incidental charges (OAR 836-071-0267). A producer may make a short list of small charges for specific customer services on both personal and commercial lines. It must first give the customer written notice of every incidental charge it may impose and the service each covers, no later than the application or renewal, and disclose the amount when it charges one. The allowed charges include:

Service	Maximum
Rewriting or reinstating a policy the insurer canceled because of the customer’s action or inaction, such as nonpayment (not the first time)	$25 personal lines, $100 commercial
Taking a premium payment in cash	$10
Photographs or an inspection	Actual cost, up to $7.50 personal, $45 commercial
A motor vehicle report	Actual cost
A duplicate ID card at the customer’s request	$5
Each personal lines endorsement beyond the first six in six months	$10
A duplicate SR22 filing	$5
Each certificate of commercial insurance beyond the first 20 in a policy period	$5

A producer may also charge for a returned check as ORS 30.701 allows.

Disclosing compensation from both sides (OAR 836-071-0260). A producer paid by the client under ORS 744.091 (or the similar retail-wholesale and surplus lines arrangements) may not also accept compensation from the insurer for the placement unless, before the client buys, the producer has:

• Obtained the client’s documented acknowledgment that the producer will receive it
• Disclosed the amount of the insurer’s compensation or, if it is not yet known, the method for calculating it and, if possible, a reasonable estimate
• Disclosed the nature of the work the producer will perform for the client

When the client pays the producer under such an arrangement and the insurer pays the producer nothing, the producer must still obtain the client’s documented acknowledgment that it will receive the compensation, and disclose the nature of the work it will perform.

“Compensation” is broad: payments, commissions, fees, overrides, bonuses, contingent commissions, loans, stock options, gifts, prizes and any other valuable consideration. A producer paid a service fee under OAR 836-071-0277 must likewise obtain the documented acknowledgment and disclose the amount of any insurer compensation before the purchase (OAR 836-071-0263).

A retail producer who pays a wholesale producer or a surplus lines licensee may pass that cost on to the client, but only under a written agreement made before binding, and no more than the amount the retail producer paid (ORS 744.093, 735.455).

Examination of records (ORS 744.068(2), (3))

• A resident producer keeps the usual and customary records of its business at its principal place of business. They are kept available and open to inspection by the Director during business hours (ORS 744.068(2))
• A nonresident producer does the same. If a nonresident producer has a place of business in Oregon, that place is its principal place of business for this purpose (ORS 744.068(3))
• Records of insurance transacted under the license are kept for three years following expiration of the policy, unless the Director designates another period

Separately, premium fund records are kept in Oregon for the Director’s inspection on demand for three years after the policy expires (OAR 836-074-0045). The Director may examine or audit any trust account and its records (OAR 836-074-0047).

Sidenote

Know this...

Three numbers carry most of the trust account rules. Premium funds are deposited within 7 days. Money owed back to an insured, including unearned commission, is paid within 30 days. Cash taken by a producer with no trust account is converted and forwarded within 72 hours.

Lesson summary

• Premiums are received in a fiduciary capacity and kept in a separate trust account in Oregon, never commingled with the producer’s money, except the producer’s own funds added for advances, return-premium reserves, contingencies and bank charges (ORS 744.083).
• Premium funds are deposited within 7 days. Return premiums and unearned commissions are paid to the insured within 30 days. Gross commissions may be moved to the operating account (OAR 836-074-0025).
• Trust account records must trace every transaction, and are kept in Oregon for three years after policy expiration.
• Commission may be paid only to a licensed person. Renewal commissions survive a later lapse if the producer was licensed at the sale (ORS 744.076). A producer who is not also a consultant receives only commission (ORS 744.077).
• ORS 744.091 allows a commission, a fee or both on insurance outside three categories: individual coverage, life or health groups under 51 lives, and commercial or public entities paying under $100,000 a year; a commission or fee other than the filed one needs a written agreement before binding. Within those categories the service fee rules govern.
• Service fees are prohibited on an individual’s coverage (apart from incidental charges). On other coverage they are allowed for extra service, or under an ORS 744.091 or 744.093 arrangement, always with a written explanation, and never for arranging premium financing (OAR 836-071-0274, 0277).
• Small incidental charges, such as $10 for a cash payment or $5 for a duplicate ID card, are allowed only after written notice (OAR 836-071-0267).
• Taking compensation from both client and insurer requires documented acknowledgment and disclosure of the amount and the work, before purchase (OAR 836-071-0260).
• Resident and nonresident producers keep their records at their principal place of business, open to the Director’s inspection, for three years after the policy expires (ORS 744.068(2), (3)).