Q: What's the best practice for informing insureds that a policy on a premium finance agreement is being canceled for nonpayment? Should the agency let the insured know and track down the premium past due or just let the policy lapse?

Response 1: It’s a very bad idea to start a precedent in contacting a client because they tend to start relying on the agent.

If the agent does not contact them, a problem may arise. Agents often get mail that was intended for a different agency. This may be true for their mail. If their mail went elsewhere there may be no warning to contact the client. Don’t start this dangerous precedent.

Response 2: It is up to the insured to pay. I doubt any of the utilities call folks to tell them to pay. That is not a dependence you want to develop.

Response 3: Best practice is to let the process work and do not involve yourself with trying to “rescue” late-paying customers. It creates more work, usually only helps the already-unprofitable customers, and is an errors & omissions exposure.

However, if you’ve made it a practice in the past to contact late-paying customers to remind them to pay their past-due bill, then you’d better remind every client. Then, you need to evaluate a process for how you contact customers to tell them you will no longer send past due reminders. 

The bottom line is: you need a universal practice for all customers—the same way every time for every customer. Your state association and your E&O carrier will be able to offer you guidance on this subject.

Response 4: What are the provisions stated in the policy and state law? Your E&O provider will tell you to never reach out to the client. But in reality, I would bet that a significant number of producers reach out to assist their client and income stream with a friendly reminder.

You are in a service business. If you got them the premium finance contract you took on a position of concern for the insured.

Response 5: If the policy is being cancelled for nonpayment specifically, the cancellation is not valid since the carrier has already been paid by the finance company. The only correct way for that policy to be canceled is by the insured’s request. The named insured gave that limited power of attorney to the finance company when they signed the initial financing agreement.

The finance companies know that a cancellation notice they issue for nonpayment is not valid—they just want to scare the insured into paying. If the carrier issues a notice of cancellation which includes “nonpayment” as the reason, you need to intercede by either getting the insured to pay so that the carrier can keep the policy in force or getting the carrier to reissue the cancellation notice properly showing the reason as "insured request."

Response 7: I would not get involved in tracking down any past due premium. Staying out of the equation entirely would certainly be the most conservative position.

Response 8: Don't give the customer any special treatment. This is not the agent's responsibility and opens the door for E&O claims. The premium finance company is in charge. Keep yourself out of it.

This question was originally submitted by an agent through the Big “I” Virtual University’s (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.