Fast Focus
	Globalization, specialization and more transparency are changing buying habits.
	Additional market access offered by wholesalers gives retail brokers greater pricing leverage.
	Wholesalers must prove their worth by adding value without any unjustifiable increase in cost.

Wholesaler brokers can often cover what retail brokers can’t.

EDITOR'S NOTE: Wholesale-Nomics, a White Paper on insurnace wholesalers, appears at the end of this article.

By  David Pagoumian

It’s a business cliché: To save money, get rid of the middleman.

Yet, when it comes to complex or high-risk insurance placements, it’s a myth. Including a wholesale broker on the placement team often improves the economics of the insurance transaction and can yield better coverage with no increase in cost.

Yes, it may seem a paradox, but changes in the insurance industry have made partnerships a potent weapon, and retail brokers who avoid alliances with wholesale placement specialists could be doing their clients a disservice and missing out on growth opportunities for their own business.

The rise of wholesalers in general business dates back to the 19th century. Wholesalers offered manufacturers an efficient way to widely distribute products while leveling the playing field for small retailers by giving them access to the same products carried by larger competitors.

Wholesale insurance brokers perform a similar function; though, in today’s increasingly complex risk landscape, they are much more than product distributors. Wholesale brokers are knowledgeable placement specialists who, collaborating as a team with retail brokers and insureds, offer the advantage of deep expertise in particular lines or classes of business, sophisticated technology to evaluate risks, and access to markets that would otherwise be out of reach.

The medical profession provides an apt analogy. In commercial insurance, the retail broker is similar, in some ways, to a cardiologist who consults with other specialists to ensure the patient, or in this case the insured, gets the best quality care, especially in complex, unusual or time-sensitive situations. Retail brokers who are unwilling to call in a specialist—the wholesale broker—could be denying their clients the best available expertise and coverage by limiting opportunities to explore all available options on the insured’s behalf. It pays to get a second opinion from a knowledgeable source—particularly if it results in better coverage and lower premiums for the insured.

Insurance brokers who try to go it alone also ignore changes in the dynamics of the market. It’s a volatile period for the insurance industry, and trends toward globalization, specialization and greater transparency are changing insurance buying habits. That, in turn, is driving a shift in insurance distribution channels. While the idea of involving a specialist in complex insurance transactions is nothing new, wholesale brokers no longer operate behind the scenes like the wizard behind the curtain. Corporate executives today are demanding information and accountability from brokers and exerting more control over their insurance programs.

Against that backdrop, wholesale brokers have assumed a higher profile, with more risk managers electing to appoint a wholesale broker to consult on every placement and, when appropriate, to represent their account to the excess and surplus and specialty markets. As consolidation among retail brokers upends established relationships, some risk managers now rely on a wholesale broker to undertake all of the marketing functions for their account or market the account in coordination with their retail broker.

Expertise and Capacity

The relationship between retail brokers and wholesale brokers has been evolving over time from one of independence to interdependence. In an effort to streamline marketing and risk selection, some specialty insurers restrict access to their capacity to specific wholesale brokers. Retail brokers, likewise, recognize that a wholesale broker can provide necessary expertise in a particular industry, class of business, or type of exposure.

Partnering gives retail brokers access to a wider universe, especially if they are otherwise limited to placing insurance through admitted carriers operating in states where the retailer is licensed. State regulations governing the policy forms and rates of admitted carriers can sometimes restrict the flexibility and creativity necessary to write high-hazard, unusual or distressed risks. Carriers that specialize in this type of coverage typically choose to operate in the surplus lines market, where they are free to tailor coverage to the needs of each insured.