The value of using a wholesale broker for specialty insurance

A week or so ago, I posted a question on the LinkedIn Cyber Privacy Security group, looking for insight into cyber markets for large urban university risks.

The thread pretty quickly devolved into an unintended debate about the value of wholesalers.  One side suggested that there is an extra layer of cost in using wholesalers; the other side countered with ‘no, the commission is split with the retailer and besides the additional competition by involving wholesale-only markets brings the cost down and coverage quality up.’

I’m inclined to think that it would be difficult for regional and local brokers to stay fully informed about the highly specialized products we write about here, and that wholesalers provide a much needed service.  This service benefits the broker and the insured.

Is there really an additional ‘cost’ to the insured if the broker uses a wholesaler?  Is a better product selection worth that (possible) extra cost?

I’d be interested in your thoughts and experiences.

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4 responses to “The value of using a wholesale broker for specialty insurance

  1. Just into this but I will tell you I was a broker at a national retailer for 14 years. We did not use wholeslaers. We were too interested in not share our compensation.

    We write a number of large NYSE companies, included are what I and the WSJ consider “best run companies”, those retailers came to us because they wanted the best for their clients. Compensation wasnt an issue, their concern/objective was to bring expertise, passion, results to the people who trusted them in their D&O/E&O, etc.

    So I have seen it both ways. I think the real question shoudl be how to find a wholeslaer who truly brings value added expertise / results. The problem many of us face is getting throw into a general classification, in this case “Wholesalers”.

    I would also sugest a retaler who is watching their P&L to consider this: where else can you outsource the marketing to 50+ underwriters, have policy comparisons provided, get the most state of the market terms and conditions, have an active participate in eventof a claim, assure timely policy delievery for 5% of of your comission (10% instead of 15%) so you can spend your time retaining your clients and solicting new ones?

  2. Wholesalers frequently bring value to the process and also allow you to provide more options to your clients. Many of the available products are also non-admitted and therefore use of a wholesaler is required unless you have an E & S license. I agree with Peter’s comments above with one exception and that relates to the claims process – frequently the carier will only communicate through the wholesaler as they have no direct relationship with the retail broker.
    I would like to pose another question for the group – how important do you feel it is to have the same carrier provide D & O and/or E & O along with the privacy coverage?

  3. I think it depends on the competency of the retail agent. I have been involved in purchases through our retail agent who used a wholesaler for a particular LOB. If there were benefits by the retail agent using a wholesaler, I never saw them. In fact it took another retail agent to point out the coverage deficiencies.

  4. Wholesalers bring value as respects specialized product that are not commonly written and that require specialized expertise. This is a temporary role however because the added cost typically can’t be sustaimned by the marketplace. Like everyrthing else the benefit of using a wholesaler must be weighed against the cost of their services. To the extent that the cost associated with a wholesaler is appropriately factored into the price of the product and the ultimate customer sees enough value to agree to pay the higher price, then the wholesaler adds value. At some point, however, when the specialized product becomes mnore commonplace (e.g., EPLI) a wholesalers value to the transaction becomes less and the added cost becomes unsellable.

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