An insurance broker is an intermediary between the insured and the insurance companies, or carriers, providing the insurance. But what distinguishes a retail broker from a wholesale broker? Additionally, what are the advantages and disadvantages involved in using a wholesale broker? Below, we will answer these questions to help you 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 called 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. These relationships allow 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.
However, when a retail broker’s client needs broader or specialty coverage options, the retail broker will work with wholesale insurance brokers to get their customers the right coverage. 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, they cannot always offer coverage provided by specialty insurance markets. That’s where wholesale insurance brokers come in.
Specifically, wholesale brokers often assist the retail broker in obtaining surplus lines coverage when admitted markets are unavailable. A surplus line may refer to a specialized line of insurance such as Aviation Insurance or high-limit Property Insurance policy for a specialized industry.
Retail brokers also use wholesale brokers to provide excess coverage to gain additional insurance over primary lines of coverage. In short, wholesale brokers provide additional resources and insurance products that retail agents cannot easily access.
Challenges with a Wholesale Broker
Despite their advantages, insureds and retail brokers 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, they must first ask the wholesale broker, who then relays the question to the retail broker, who then finally passes on the query 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.
