Leader's Edge logo Channel Check by Kevin Amrhein Tell the Editor
Channel Check by Kevin Amrhein The Eyes Have It

Wholesalers serve as carrier's expert eyes and ears in a vast sea of retailers.

By  Kevin Amrhein

There are just south of half-a-million licensed insurance producers in the U.S. You would assume providers of products would chomp at the bit to get their message on the tips of the tongues of as many sellers as possible. Fortunately for the masses, the aforementioned “you”—yours truly—is still struggling to shake loose nagging dreams of a golf career, not managing the business models of some of our industry’s most successful—specifically, those of providers writing billions in net premiums through the use of a single channel: wholesale brokers.

The wholesale distribution channel was created by carriers seeking to provide superior products for a universe of insureds who are anything but universal. Many carriers have invested a great deal in this channel. Some stake everything on it.

Just ask Jim Carey: “100% of our business comes to us through independent wholesalers.” Carey is president and CEO of Admiral Insurance Co., an E&S provider of primary and excess liability, property, and professional liability for moderate-to-high-hazard commercial risks. “We’ve been doing it this way for 35 years and have been very successful using this distribution model,” he says.

This begs the question: If retail agents are on the front line, jamming feet in doors and losing hair and sleep while putting together a program for their insureds, why do some carriers prefer the intermediary option rather than offer direct appointments to select retail agents?

“Working exclusively with independent wholesalers provides reach and access without the expense of a full-time marketing and sales force,” Carey explains.

Others agree that the sheer number of retail agents is a major reason to forgo direct agent appointments for the wholesale distribution channel.

“We don’t do run-of-the-mill business. For some 20,000 or more retailers to know what we do is impossible,” says E.G. Lassiter, president of RSUI, a specialty insurance underwriter. Started in 1988, RSUI underwrites $1.2 billion of both admitted and non-admitted products exclusively through wholesalers.

“We cover 90% of retailers in the country utilizing the services of about 150 wholesalers,” he says.

But volume is just the beginning. Carey says a potential problem that E&S markets face when placing business directly through a retail agent is surplus lines taxation. This process, he says, can be complex and risky, particularly when involving a multistate risk. State law puts the onus on the retailer/surplus lines licensee, which can be a pain for retail agents who are not set up to handle it. Wholesale brokers are familiar with the process. Carey says they can confidently write the business without the worry of part of the process breaking down.

Admiral and other E&S markets have the option to go directly through retail agents as long as they have an excess and surplus lines license. However, Carey does not believe they will pursue this option anytime soon.

“We prefer having another E&S expert involved in the transaction. A retail agent may see the type of risk we write once a year, whereas a wholesaler sees it 50 to 100 times a year.”

Wholesale brokers also provide a level of quality control.

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