Wholesalers don’t get no respect, yet they can find your market and may save you (and your client) money.

By Chris Hann

Whenever two wholesale insurance brokers get together to chew the fat about their often overlooked and misunderstood line of work, the conversation is likely to sound like something from that master of self-deprecation, Rodney Dangerfield. That’s largely because the insurance industry generally views the wholesaler as a sort of mysterious middleman working surreptitiously between retail brokers and agents, and their carriers, but almost never interacting directly with the insured. The wholesalers’ role in the distribution chain is burdened by the perception—the misperception, they’ll tell you—that their participation in any transaction only means increased costs for the client in search of coverage. Through no fault of their own, it seems, wholesalers have become the insurance industry’s forgotten stepchildren. As Rodney himself might have phrased it, they don’t get no respect.

The irony, of course, is that wholesalers, by securing high-risk or difficult-to-find coverage, provide a valuable service to both the retailer and the insurer. That’s the reason wholesalers are in business, after all—they specialize in the extraordinary. When a client approaches a retail agent seeking unusual or high-risk coverage—for a skyscraper, say, or an explosives manufacturer, or the legs of a Hollywood starlet—the retail agent is likely to turn to a wholesaler broker. Working more often in the surplus lines markets, wholesale brokers have access to insurance carriers that can provide the specialized coverage being called for. Some carriers, in fact, insist on doing business only with wholesalers.

Gerald Sullivan, who founded The Sullivan Group in Los Angeles more than 20 years ago and has spent more than 35 years in the industry, knows well the role of the wholesaler. “The reason retailers go to wholesalers is because in virtually all instances they have a risk for which they don’t have markets that will handle what they’re trying to deal with,” he says. “And wholesalers, their lot in life is to find markets that are good at dealing with difficult, different, unusual, somewhat non-standard or non-typical type risks. And there a lot of companies out there that do that kind of stuff.”

Yet to the public—and even to a large portion of the insurance industry—wholesale brokers remain something of a mystery. They needn’t be. Surplus lines carriers write some $35 billion in annual premiums, more than 13% of commercial property-casualty premiums written each year. No doubt about it—wholesale insurance is very big business. The largest wholesale broker, American Wholesale Insurance Group, based in Charlotte, N.C., operates more than 35 offices and places more than $2.8 billion in annual premiums.

In recent years American Wholesale has pursued an aggressive course of growth by buying other wholesalers, including Stewart Smith Group, which it purchased from Willis. That transaction was part of a purge of the nation’s three largest wholesale brokerages in 2005 in the wake of the investigation by former New York Attorney General (and current governor) Eliot Spitzer. David Pagoumian, president and chief operating officer of Napco, a New Jersey-based property wholesaler founded by his father, concedes that the Spitzer probe took its toll on the wholesale community. “I think it does have a little bit to do with public relations,” Pagoumian says. “The whole Spitzer thing has us brokers looking like a bunch of crooks. Everybody was looking at his broker as if it was a trust issue. And that’s the most critical issue in any business.”

Even as he acknowledges a P.R. problem, Pagoumian remains convinced the wholesalers provide great value to an institution in search of out-of-the-ordinary coverage. “Our typical client is a retail broker,” he says. “We bring strength to your in-house abilities. We have access to strong markets. We know how to trade. We know how to get the best results from them and hand them over to you and strengthen your chances of getting a good deal.”

And often, wholesalers say, without adding cost for the retailer’s client. Sullivan believes it all comes down to this: Good wholesalers bring to the table a wealth of specialized knowledge, which in turn means access to the best insurance available at the best terms—and that, after all, is what the insured is looking for. “You’ll find many wholesalers out there that have developed a particular expertise, and they get markets who will want to support them,” Sullivan says. “The markets will provide better terms because of the expertise they’ve developed. Maybe somebody’s particularly good at doing horse liability or long-haul trucking—there are thousands of different categories that companies develop expertise for. To say that by going to a wholesaler you increase cost totally misses the role that wholesalers play.”

Still, many wholesalers have a tough time getting over what might be called the Rodney Complex. “The biggest frustration is that we can’t defend ourselves to the buyers,” Pagoumian says. “We’re in the basement. We don’t come up into the kitchen and have dinner with them.”

Rodney, rest his soul, couldn’t have said it better.

Hann is a contributing editor. Chris.Hann@LeadersEdgeMagazine.com