Insurance broker bookkeeping: the trust account is the spine of the books

Trust accounting comes first, because RIBO says it does

Premium money a client pays you is not revenue and it is not yours — it sits in the trust account as a liability owed to carriers until remitted, with your commission the only part that ever becomes income. RIBO requires the trust account to be reconciled and your annual filing to demonstrate a positive trust position: trust cash and premium receivables covering what you owe insurers. A brokerage that only discovers its position at filing time has been flying blind all year.

We reconcile monthly on three legs: the trust bank balance, the trust liability by carrier, and the receivables from insureds that fund the gap. Commission transfers out of trust happen deliberately and on schedule — sweeping commission early, or covering an operating shortfall from trust, is how brokerages end up in regulatory trouble, and clean books make that visible before it happens.

Direct bill and agency bill are two different bookkeeping systems

Most brokerages run both, and the books have to treat them differently because the money moves differently. On direct bill the carrier invoices the insured and later pays you commission; there is no trust event at all. On agency bill you invoice the insured, the premium lands in trust, and you remit to the carrier net of commission through the account current. Mixing the two in one undifferentiated revenue account produces books that can neither reconcile trust nor explain margin by line of business.

The account current: carrier statements do not reconcile themselves

Every carrier sends a monthly statement of policies written, premiums due, and commissions credited, and every one of them has to tie to your broker management system — Applied Epic or whatever you run — before you remit. Mid-term endorsements, cancellations, and return premiums are where the differences live: a cancelled policy means returning premium and reversing commission you may have already counted. Remitting off the carrier's number without that walk means quietly absorbing their errors, and yours.

Premium financing adds one more flow to keep straight. When a commercial client finances the premium, the finance company funds the policy while the client repays the financer — so the cash arriving in trust comes from a third party, and a later cancellation triggers a return premium that is owed to the financer, not the insured. The trust ledger has to know whose money each dollar is, or the refund goes to the wrong party.

We treat each carrier as its own payable, reconcile statement to system to trust, and clear differences monthly while the policies are still fresh enough for the team to remember them.

Contingent commissions, producer splits, and the exempt-income wrinkle

Contingent or profit commissions — the annual cheques tied to volume and loss ratio — should stay out of the monthly revenue run rate and be recorded when the carrier's calculation makes them determinable, because a bad late-season storm can erase an accrual you booked in July. Producer and sub-broker splits need per-producer ledgers that tie to what each one actually placed, and payouts to self-employed producers belong on T4A slips at year end. Salaried CSRs and account managers run through payroll with T4s instead, so a growing brokerage usually carries both systems side by side — and the books have to keep the two kinds of compensation from blurring.

On tax, arranging insurance is a financial service, so brokerage commission income is generally HST-exempt — which means no HST charged, no input tax credits, and expenses recorded gross with the HST inside them. And because the year-end corporate filing leans on trust-clean books, the T2 is mostly assembled by the time the fiscal year closes. Brokerages taking commissions from US carriers or MGAs, or holding a cross-border book, should start with our insurance broker cross-border tax page; the monthly machinery is described on our bookkeeping services page.