Insurance premium trust accounting in Canada

What a premium trust account is

When a brokerage collects a premium from a client, that money is not the brokerage’s to spend. Most of it belongs to the insurer; part of it is the brokerage’s commission. Until it is remitted, the brokerage is holding it in trust on behalf of others.

A premium trust account is a separate bank account used to hold that money — premiums coming in from clients, and payables going out to insurers — kept apart from the operating account that runs the business. The principle is well established across Canada: brokers are generally expected to hold client and insurer premium in a segregated trust account and reconcile it. The exact rules are set by your provincial regulator, so confirm them with your provincial broker regulator.

Why it has to be segregated

Segregation exists to protect money that isn’t yours. If premium money sits in the same account as operating cash, it gets spent on payroll, rent, and overhead — often without anyone deciding to do so. The whole point of a trust account is that the money is structurally protected from the day-to-day pressures of running the firm.

Segregation also makes the trust position knowable. Because the account holds only trust money, the bank balance can be compared directly to what the brokerage owes out of trust. That comparison is the heart of trust accounting.

Trust assets vs trust liabilities

There are two sides to the trust position:

• Trust assets — the cash actually sitting in the trust bank account.
• Trust liabilities — what the brokerage owes out of trust: premiums payable to insurers, and any client funds held (such as return premiums or unearned amounts).

A healthy trust position means trust assets are at least equal to trust liabilities. In other words, there is always enough cash in trust to cover everything owed out of it. This is the single number that matters most in brokerage accounting.

Surplus vs shortfall

The relationship between the two sides produces one of two situations:

• Surplus — cash in trust exceeds what is owed out. This is acceptable and common; firms often keep a buffer of their own funds in trust to avoid ever dipping below liabilities.
• Shortfall — cash in trust is less than what is owed out. This means trust money has effectively been used for something it shouldn’t have, even if by accident. A shortfall is a serious problem, both financially and from a regulatory standpoint.

The goal of monthly trust accounting is to confirm a surplus (or at least no shortfall) and to catch any drift immediately.

Monthly trust reconciliation

A trust reconciliation compares three things and makes sure they agree:

1. The trust bank statement balance.
2. The trust ledger in your broker management system.
3. The trust liability — the sum of what you owe insurers and clients.

Reconciling monthly — and documenting it — is widely treated as good practice. The frequency that is actually required varies by regulator, so confirm it with your provincial broker regulator. What does not vary is the underlying discipline: a brokerage should always be able to prove that trust assets cover trust liabilities.

What regulators generally expect

Provincial broker regulators — RIBO in Ontario, the Insurance Council of BC, the Alberta Insurance Council, and the AMF in Quebec, among others — generally expect brokers to maintain a segregated premium trust account, keep proper records, reconcile it, and never let it fall into shortfall. The specific thresholds, deadlines, and reporting requirements differ by province. Treat the principles here as the general framework and confirm the precise rules with your own regulator.

Getting trust accounting right

BrokerLedger does brokerage trust accounting inside the systems brokerages already run, including Applied Epic — reconciling the trust account every month, tracking trust assets against trust liabilities, and surfacing any drift before it becomes a shortfall. If you can’t say with confidence today whether your trust cash covers your trust liabilities, a discovery call is the place to start.