A wholesale insurance broker acts as an intermediary between a retail broker and an insurance carrier. Wholesale insurance brokers rarely have direct contact with the insured; rather, the retail broker will manage that relationship and will sell the insurance to the client.
The International Risk Management Institute (IRMI) says: “Wholesale brokers often possess specialized expertise in a particular line of coverage or in a line of coverage that’s unusual and/or have greater access to or influence with certain insurance markets – which is especially valuable when dealing with a difficult-to-place risk.”
For example, if a retail broker is approached by a client looking to transfer a specific or specialized risk – e.g. tree surgeon insurance - the retail broker can use the services of a wholesale insurance broker to obtain a quotation and sell a product to their client, even if they don’t have direct access to an insurer that writes this type of business.
What is a retail insurance broker?
Retail insurance brokers work as an intermediary between a customer desiring coverage and the insurance marketplace. They buy insurance products from insurance companies and wholesale brokers and they sell them to individuals or businesses. Some retail insurance agents will only work exclusively with one insurance company or wholesale broker.
What’s the advantage of working with a wholesale insurance broker?
Wholesale brokers are usually able to offer quite specialized insurance policies. For example, in the US, the majority of wholesale insurance brokerages work with non-admitted, surplus lines carriers that are not licensed by the individual states and therefore have more flexibility to offer unique, specialty products and more freedom in pricing.
International insurance firm Zurich says there are three key areas where wholesale brokers continue to bring value: expertise, speed and efficiency, and strong relationships. Wholesale brokers often have years of experience in their areas of specialty and have successfully navigated both hard and soft markets. They’re able to adapt to changing market dynamics and embrace new and emerging risks with speed and clarity. With that, they also have strong relationships with both retail brokers and insurance carriers because they’re able to find coverage for hard-to-place risks, often at quite an attractive rate.
According to Zurich: “Experience shows that wholesalers are able to more quickly go to market due to their flexibility and open structure. These brokers often have better access to certain insurance markets and that access may prove very beneficial when dealing with difficult-to-place risks. While some retail brokers have expressed concern about the additional cost to go through an intermediary, a recent analysis by Conning, Inc. determined that use of the wholesale distribution channel does not increase the cost of the transaction to the insured.”
Links to the London market
The London insurance market has very close ties to wholesale brokerage practice around the world. It’s one of the world’s leading centres for complex commercial and specialty risks, controlling more than US$91 billion (around CA$121 billion) in gross written premium in 2017, according to the UK Financial Conduct Authority (FCA).
“Given the size of the wholesale insurance sector and the type of large-scale risks it covers, the way it functions can have a wide-ranging impact on the broader economy. If businesses cannot get appropriate cover or pay more for services than they should, it can impact on their ability to operate and grow,” said Christopher Woolard, FCA executive director of strategy and competition. “Brokers play an important part in the wholesale insurance sector ensuring clients get appropriate coverage at good value.”
Andy Walsh, managing director at Lloyd’s wholesale broker Citynet, told Insurance Business: “The beauty of having a wholesaler [linked to the London market] is that the broker can simply pass on a small piece of business to us and say – you guys know what you’re doing, sort it and come back and tell us how much it is.
“Even if as a broker you don’t have a huge amount of business, what you get when you come to a wholesaler is you’re buying into that collective muscle and buying power that we’re putting into the market. Even if you’re a small fish, you can actually benefit from what other brokers are placing with us.”