Whether an independent or captive agent, insurance salespeople promise to deliver a degree of profit to their partner companies. They likewise have to ensure that they handle the funds of their clients in an ethical manner. Failing to do so could harm insurance clients and the various providers that agents associate with.
An organization’s management has an ethical duty to manage its funds correctly. Misappropriating agency money may lead to allegations of fraud or misuse of funds. Whether true or not, the allegations could harm the agency itself.
Insurance to Protect Against Misuse of Funds Claims
Misuse of company funds may include a variety of indiscretions on the part of an agency’s management. They might pocket funds from the agency unfairly. They may mismanage budgets, withholding money that should go to an insurer or client. Regardless of whether misuse of funds was unintentional or purposefully deceptive, affected parties might sue the agency.
Should a lawsuit occur against an agency’s management, the business will likely have to respond. This could lead to financial ramifications for both the operation and the affected management. In such an event, the agency may need to turn to its directors & officers (D&O) insurance coverage.
D&O coverage can help businesses in case someone makes a claim against their management, owners or governing boards. In a misuse of funds case, a business may be able to use its coverage to repay damaged parties or fight the legal costs associated with a suit.
Preventing Misuse of Company Funds
Even if D&O insurance will protect an agency, it won’t make them immune from allegations of wrongdoing. D&O insurance will not cover intentionally negligent or deceptive acts. Therefore, agencies have an obligation to prevent misuse of funds. The following best practices may help them do so.
- Agencies should track their accounts on hand using certified accountants. These accountants may be able to track money and release funds to company managers as needed.
- All members of an agency, including managers and directors, should have to follow a reporting system to track expenditures and cash flow.
- A regular audit of the business, including informal audits, may help agencies provide oversight of their costs and expenditures.
- Employees and management should have a confidential and ethical system to report suspected misuse of funds cases.
Careful oversight and supervision of all agency employees, including management, can help prevent allegations of misuse of funds. This may help the business avoid ever having to use its D&O coverage.
Do you need D&O coverage for your insurance agency? Let U.S. E & O Brokers help. Call us at (800) 460-6424 for a fast, free policy quote.