Premium Finance Company Bond Claims Guide

Businesses that provide premium finance loans are required to be licensed with the governing regulator in most states. To be eligible for an approved license, and to maintain it, the owner of the premium finance company is typically required to provide the regulator with a form of financial security such as a surety bond.

This is where Jet Insurance Company comes in. Our goal as a surety company is to provide our current and future customers (in this case, premium finance companies) with the financial backing of a Premium Finance Company Bond efficiently and at an affordable price.

Now you may be wondering why you even need a surety bond? To put it simply, the main purpose of a Premium Finance Company Bond is to provide the licensee financial accountability for their actions by ensuring the state that the premium finance company and its employees comply with all state regulations. If a license violation is committed that results in damages to a client and remains unresolved by the owner of the premium finance company, the surety bond may be used as a means of restitution by the claimant. 

Let’s go over the best ways to avoid the above scenario and what to do should an official claim ever occur.

How to Avoid a Premium Finance Company Bond Claim

As a licensed premium finance company, you (the owner) and your employees are expected to comply with all state regulations, as well as fulfill any contractual obligation agreed upon with clients of your company. Failure to uphold these requirements can lead to action on your bond.

To ensure you and your employees are aware of what NOT to do as a premium finance company, the Jet team has gathered various examples of prohibited acts and listed them below.

• Charge premium fees that are larger than what is allowed in your state of business. For example, in Florida and North Carolina, the max fee is $12 per $100 premium financed.
• Fail to maintain accurate records and accounts of premium financial agreements
• Bribe potential customers with a gift, rebate, or other consideration in exchange for entering into a premium financial agreement
• Unnecessarily attempt to or enter a client into more than one premium financial agreement in order to obtain more premium
• Offer a discount or rebate to an insurance agent as a method to secure the financing of future insurance policies

Claims Process Details

Who Can File a Claim on a Premium Finance Company Bond?

A financially damaged past or present client of the premium finance company may pursue civil action directly against the owner of the company which can lead to a bond claim. Sometimes the governing regulator who manages your license will file a claim on behalf of a claimant, but this route is rare. They will most likely be more interested in handling the penalties regarding your license. 

Are There Limits to Claim Filings?

Yes! Claims are limited in regards to the amount that can be paid out and when a claim may be filed. 

To elaborate, a payment for a claim may never exceed the surety bond’s liability. The amount of liability covered is represented by the dollar amount of the bond. Premium Finance Company Bond limits range from $5,000 to $50,000 and are managed by the state regulator. The limit can be a standard amount found in the statutes or may be determined by the governing regulator themselves. 

As for the liability period (a period of time when the surety company remains liable), a claim may be filed on a Premium Finance Bond at any point during this time as if the bond is still active. This “cancellation” or “grace” period keeps the bond alive during this timeline of 15, 30, 60, or 90 days (whatever is detailed on the bond form).

Some states allow claims to be filed well past the bond expiration, which is called the bond’s “tail”. For example, a claim on a Florida Premium Finance Company Bond may be filed while the bond is active AND for 12 months following the cancellation of the bond. Of course, only actions taken during the bond lifecycle can have a claim made upon them.

What Would a Premium Finance Company Bond Claim Look Like?

Let’s say that Brian Batista is a North Carolina resident and has recently purchased an insurance policy and paid for it through Gold Premium Finance Company. Brian finds his monthly insurance premium cost to be a little high but didn’t think anything of it since the company had been recommended to him by Sean, a coworker that he trusted. However, when Brian mentions the price he’s paying to Sean, his coworker is surprised as he is only paying half that price for the same agreement. Additionally, Brian and Sean have similar financial backgrounds and credit scores. So why is Brian being charged such a high premium?

Complaint

The first step Brian can take is to call Gold Premium Finance Company directly to discuss why he is being charged such a high rate and possibly request a refund. However, when he calls the company and speaks to a representative, they are not willing to give him the answers he needs or give him a prorated refund for his high premium costs. If the company continues to refuse Brians’s requests, he has the option to file a complaint with the state regulator that is in charge of Gold Premium Finance Company’s license.

Additionally, Brian can file a complaint with the premium finance company’s surety provider (Jet). If this occurs, Jet will review the complaint and conduct a full investigation into the matter. In cases where the complaint is determined to be justified, the claimant (Brian) has the option to pursue an official claim. The process will be handled by Jet.

Investigation

Once an official investigation has begun by the North Carolina Department of Insurance (the state regulator in this example), it will be up to Brian to provide evidence that he is being significantly overcharged when it comes to premium fees. If the complaint is found to be valid, Gold Premium Finance Company will be ordered by the Department to reimburse Brian for twice the premium he paid within a certain amount of time. Further license penalties will be pursued by the Department as well.

In this case, Gold Premium Finance Company is found to be guilty of charging Brian premium fees that are larger than what is allowed in the State of North Carolina.

This is an unlikely move, but for the sake of this story, let’s say that the premium finance company is STILL refusing to reimburse Brian for what he is owed.

Civil Action

Brian now has no choice but to pursue civil action against Gold Premium Finance Company. A North Carolina court will review and investigate Brian’s case and a court proceeding will ensue shortly after. Once again, Gold Premium Finance Company is found to be at fault by the court and a claim is officially filed on the Premium Finance Company Bond. Funds from the surety bond will cover the financial losses incurred by Brian (in some cases, attorney fees are covered as well).

Restitution

The North Carolina court will send an official claim notice either to Gold Premium Finance Company directly or to their surety company (Jet). Either way, it will be up to the licensee to provide Jet with all available information and documentation regarding the claim. Although the claim has been looked into two times previously, the Jet team will still conduct our own investigation to ensure all information is adding up.

Brian’s claim on the Premium Finance Company Bond is found to be justified and payment is made in the court-ordered amount (claim payouts will never exceed the bond limit).

Indemnification

Gold Premium Finance Company is still not off the hook for its transgressions. Once the claim has been paid, the owner of Gold Premium Finance Company will then be expected to reimburse Jet for the claim payout that was made on behalf of their license violation. With all surety bonds, they are more like a line of credit than insurance, being a promise of financial security to everyone from the person who purchases it. Failure to repay the bond may result in further problems for the company, such as trouble obtaining a new surety bond which is needed for licensure purposes.

Each state’s laws vary slightly, so it is best to read up on these regulations for each state that you are doing business in as a premium finance company. Take a look at the chart below for further details.