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Channel Check by Kevin Amrhein Point of View

It starts with reminding retail partners that the wholesale function does not add to the cost of doing business but provides a mechanism to support company growth.

By  Kevin Amrhein

Some retailers see reducing business with wholesalers as a way to increase their margins. How does the wholesaler change that perspective?

This question, hurled from the stage a half-hour into a session at The Council’s annual Wholesale Insurance Leadership Forum in April, describes a key challenge for wholesale brokers today. As I broached the issue with attendees, I found them confident in the notion that wholesale intermediaries are well positioned to help retail and carrier partners improve the profitability of their business.

How, you say?

It starts with reminding retail partners that the wholesale function does not add to the cost of doing business; rather, it provides a mechanism to support agency growth.

“Retailers should ask, ‘Why should we chase 20 carriers when the wholesaler could identify competitive markets for us?” says Dan Real, president of ECC Insurance Brokers. From this point of view, using a wholesaler is imperative to the retail broker hoping to outsource variable costs associated with marketing and placing a risk.

Other members emphasized the other side of the equation: Wholesalers help carriers save money by helping them market their products efficiently. Carriers that distribute through a wholesaler can reduce the processing and personnel expenses associated with maintaining a vast retail-marketing network. Carriers pass along the savings, ultimately keeping the cost of doing business down.

Wholesalers are also trying to educate retail agents and brokers that the wholesale distribution channel is more than a series of portals connecting brokers and carriers. In addition to the transactional brokerage function, many wholesale brokers act as decision maker. Carriers are willing to extend the vital underwriting function and binding authority to trusted wholesaler partners, even in turbulent markets.

When they have more authority over risk selection and placement, wholesalers can reduce the workload of carrier staff while providing faster turnarounds for retail agents and their clients.

“Maintaining credibility prevents decisions on authority from being market driven,” says Wayne Carter III, president of Target Capital Partners, a managing general underwriter. “Credibility in audits, performance and other issues is what preserves and expands binding authority.”

For other Council members, the key issue is how to alleviate the commonly expressed fear of retail brokers who are skeptical of filtering risks through a wholesaler owned by a competitor. Terry Moore, principal and director of the Small Business Division and Program Group for B&B Programs, a division of Barney & Barney, says his firm took specific steps to allay those concerns. Program operations are stationed in a separate workspace, walled off and on a separate floor from retail. Program operations are also performed on separate management software. “We were judicious in making sure we kept the wholesale operation completely separate,’’ Moore says. “We treat B&B like everyone else.”

Wholesalers operate as a lifeline for smaller retailers struggling to maintain viability. “For smaller retailers, wholesalers can play the role of equalizer in markets favoring larger brokers,” says Christopher Day, president of E&S Primary Casualty Division for Navigators Group. Many accomplish this through their pre-screening capability, he says. This helps smaller retailers with limited resources in collecting and transmitting all the necessary information to bind the risk. In Day’s case, this function is essential to his carrier’s goal of getting policies out quickly.

In terms of retailers gaining a better understanding of the importance of wholesale distribution, there are few resources more beneficial than the perspective of the carriers that absorb the risk.

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