Wholesale insurance brokers play an important role in the property and casualty insurance industry, but what impact do they have on time and costs associated with the process?
An insurance broker is an intermediary between the insured and the insurance companies, or carriers, providing the insurance. However, what distinguishes a retail broker from a wholesale broker? In addition, what are the advantages and disadvantages involved in using a wholesale broker? Below, we will answer these questions in order to understand the role of a wholesale insurance broker within the broader property and casualty insurance industry.
Retail vs. Wholesale Broker
When a person or a business needs an insurance policy, they simply reach out to their property and casualty brokerage to obtain insurance coverage quotes from various insurance companies. This type of brokerage is a retail brokerage since it works directly with the person or business in need of insurance. Retail insurance brokers in the United States often have established relationships with several insurance markets. This allows them to recommend insurance coverage terms and premiums from various insurers in order to provide the most effective and beneficial package of policies to their clients. But, in addition to working directly with insurance companies, retail insurance brokers often work with wholesale brokers in order to provide broader or specialty coverage options to their clients. A wholesale broker is an intermediary broker that works between the retail broker and the insurer.
Benefits of a Wholesale Broker
While retails agents work directly with a number of standard insurance markets, often times, they cannot offer coverage provided by specialty insurance markets. Specifically, wholesale brokers are often tasked with assisting the retail broker with obtaining surplus lines coverage because admitted markets were unavailable. This could be a specialized line of insurance such as aviation insurance or large limit property insurance coverage for a specialized industry. Retail brokers also use wholesale brokers to provide excess coverage to gain additional insurance over and above primary lines of coverage. In short, wholesale brokers provide additional resources and insurance product that retail agents cannot easily access.
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Challenges with a Wholesale Broker
Insureds and retail brokers, however, should be aware of potential challenges associated with utilizing a wholesale broker. First, similar to the consumer world, a wholesaler typically adds additional costs into the retail process. In the business insurance world, the wholesale broker usually splits commissions with the retail agent for their service while charging additional fees that get passed down to the insured. Ultimately, this compensation structure can create extra costs for the insured in exchange for accessing uncommon insurance markets.
A second challenge relates to the additional time required to utilize a wholesale broker. Since the wholesale broker does not work directly with the insured, communication can be challenging and delays can occur. If an insurer has a question relating to the insured’s risk, then they must first ask the wholesale broker, who then has to ask the retail broker, who then finally relays the question to the insured. The wholesale broker adds additional steps of communication in order to transmit information from the insured to the insurer and vice versa.
In summary, wholesale brokers play an important and valuable role in the property and casualty insurance world by filling the gaps between common and standard personal and business exposures. However, retail brokers and insureds must be aware of the potential challenges and increased time associated with this type of broker.