Retention Charges

Overview

Retention charges are additional charges applied during a cancellation transaction to adjust the final amount retained for a policy. These charges may be positive to increase the amount retained or negative to decrease the amount retained.

Common use cases include:

• Minimum Earned Premiums - ensuring a minimum amount is retained to cover policy issuance costs

• Short-Rate Penalties - retaining additional amounts as a penalty for early cancellation by the insured

• Custom Fee or Refund Requirements - implementing other conditional fees or refunds based on custom business rules

Retention charges are fixed-amount, non-proratable charges that are not derived from rate-based calculations, making them conceptually similar to Flat Charges.

Retention charges are automatically created by the Cancellation Plugin during cancellation transaction pricing.

Configuration

Retention charges are declared like other charges in ConfigurationRef, but are distinguished by having their handling property set to retention.

This is the current charge definition specification:

ChargeRef

required
category Enum cededPremium | commission | credit | fee | flatCededPremium | flatCommission | flatFee | flatPremium | flatTax | invoiceFee | none | nonFinancial | premium | surcharge | tax
handling Enum flat | normal | retention
invoicing Enum immediate | next | scheduled

optional
displayName string? (deprecated)

Retention charges are configured with handling: retention and should be specified with invoicing: next. See this guide for more information on configuring normal or flat charges.

Here’s a tabular depiction of the handling and invoicing combinations:

The system will return an error if you attempt to deploy retention charges with invoicing: scheduled or invoicing: immediate.

A configuration with normal and retention charges might look like this:

"charges": {
    "Premium": {
        "category": "premium",
        "handling": "normal",
        "invoicing": "scheduled"
    },
    "MinimumPremium": {
        "category": "premium",
        "handling": "retention",
        "invoicing": "next"
    }
}

Like normal or flat charges, any element that will be associated with a retention charge must declare that charge type in its charges list within configuration.

For example, a configuration allowing normal and retention charges to be associated with a CommercialAuto element would look like this:

"elements": {
    "CommercialAuto": {
        "charges": [ "Premium", "MinimumPremium" ]
    }
}

This ensures that retention charges created during cancellation can be associated correctly with the configured element.

Usage

Retention charges are created automatically by the Cancellation Plugin during cancellation transaction pricing.

The plugin evaluates the system-generated prospective cancellation charges and can output additional retention charges that represent increases or decreases in the amount retained.

Retention Charges via Cancellation Plugin

When you create retention charges through the cancellation plugin, you set the amount on the RatingItem instead of the rate. If you supply rate or referenceRate, these will be persisted for reference, but have no functional impact. Here’s an example of a retention charge RatingItem being created in a cancellation method:

var minPremiumRatingItem = RatingItem.builder()
                        .elementLocator(policy.locator())
                        .chargeType(ChargeType.MinimumPremium)
                        .amount(new BigDecimal("25.00"))
                        .build();

Retention charges are fully reversed by the policy system when a reinstatement transaction is issued, regardless of whether or not there is a gap between the cancellation and reinstatement. This will result in reversal charges being generated as part of the reinstatement charges that cancel out the retention charges.

When a cancellation transaction is explicitly reversed through the issuance of a reversal transaction, the billing system will reverse the transaction’s retention charges.

Invoicing Behavior

Retention charges always use invoicing: next, and their invoicing is identical to that of flat charges with next invoicing.

Any retention charges created as part of a cancellation transaction are included on the next invoice generated after transaction issuance. Similarly, any reversed retention charges created by the policy service as part of a reinstatement transaction will be included on the next invoice generated after transaction issuance.

If there are no applicable uninvoiced installments for a retention charge with next invoicing, then the charge will be billed as immediate.

For immediate billing, a single new invoice will be created with the following:

1. All retention charges created by the cancellation transaction pricing

2. Any flat charges with matching currency that are pending with next invoicing

Generated early invoices will include all retention charges scheduled for the next invoice when invoiceThroughTime is used.

Note

Retention charges that are billed immediate and therefore are on their own invoice will not trigger the autopay process. These invoices will need to be handled separately. New payment requests can be created for these which can be handled by the payment execution service.

Delinquency

If invoices containing only retention charges become past due, the corresponding policy will enter delinquency.