Wholesale Insurance Explained: Understanding the Role of Insurance Wholesalers

The insurance industry operates through multiple distribution channels, one of which is wholesale insurance. Understanding the role of an insurance wholesaler is valuable for agents, brokers, and businesses seeking coverage. 

This article will clarify key concepts, differentiate wholesale vs. retail insurance, and explain how wholesale insurance works.

What is Wholesale Insurance?

Wholesale insurance serves as a vital link between retail producers and insurers, providing access, amongst other things, to niche or hard-to-place coverage. This distribution channel is essential for policies that require specialized underwriting due to factors such as complexity, high risk, or geographic constraints.

In some cases, insurers rely on wholesale intermediaries to develop, distribute, and administer specialized policies on their behalf. These intermediaries function as an extension of the carrier, particularly in one or more of the following circumstances:

• The coverage requires specific underwriting expertise 
• The carrier’s business model does not support the appointment of retail producers
• The carrier has geographic constraints due to its ability to service insureds in remote areas

Unlike retail insurance, where producers work directly with carriers, wholesalers enable retail producers to secure coverage from insurers that do not engage with them directly. By acting as a bridge between retail producers and these carriers, insurance wholesalers ensure that complex and geographically challenging risks can still be properly insured.

Wholesale vs Retail Insurance Example:

• A retail producer might sell a standard homeowner’s policy directly to a customer.
• A wholesaler might help a retail broker secure coverage for a high-risk commercial property that standard insurers won't underwrite.
• A wholesaler may also help an insured acquire coverage for a standard risk in a geography that the carrier does not service.
  
  

What is Wholesale Insurance Brokerage?

A wholesale insurance brokerage acts as a conduit between retail producers and insurance carriers. Unlike retail producers who sell policies directly to consumers, insurance wholesalers work with retail producers to secure coverage from insurers that cater to, for example, niche, high-risk, geographically challenging, or other unique or uncommon insurance needs. 

The Insurance Risk Management Institute (IRMI) breaks wholesale insurance brokers into two groups: Surplus Lines Brokers and Managing General Agents (MGAs). 

Surplus Lines Brokers

Surplus lines brokers specialize in hard-to-place risks that are not covered by traditional admitted insurance carriers. They broker business between non-admitted carriers on one side and either retail insurance agents, or insureds on the other. 

Managing General Agents

Managing general agents are specialized types of insurance agents that also operate between carriers on one side and retail agents. But unlike retail agents or surplus lines brokers, MGAs have binding authority granted to them by one or more insurance carriers. (In some instances, an entity with an MGA license may also have other licenses (such as P&C) through which it may operate as a retail agent.)

Common Types of Wholesale Insurance

Most, but not all difficult, complex or hard-to-place risks revolve around property and casualty (P&C) coverages, so it’s not surprising that P&C is the most common segment of the wholesale insurance market. Common types of wholesale insurance include:

• Commercial property and liability
• Excess and surplus lines
• Professional liability (E&O, D&O)
• Environmental and cyber insurance
• High-risk industries and emerging markets

How the Wholesale Insurance Process Works

Retail agents don’t need a special license to provide their clients with access to the wholesale insurance marketplace. If the retail agent has the appropriate line of authority (such as P&C) they can support their clients by following a process that looks something like this:

1. Risk Submission – A retail agent submits a client's risk details to an insurance wholesaler, which could be a surplus lines broker or MGA.
2. Underwriting Review – The insurance wholesaler assesses the risk and matches it with suitable carriers.
3. Quote & Negotiation – The insurance wholesaler obtains quotes from insurers and negotiates terms.
4. Policy Placement – The final policy is issued through the retail agent to the insured.
5. Ongoing Support – The wholesaler in insurance may assist with policy servicing, renewals, and claims management.
   
   

Wholesale Insurance Industry Market Size and Trends

The wholesale insurance market continues to expand at an impressive pace, though at a rate that is down significantly from pandemic-era highs. According to S&P Global, “The US-domiciled E&S [Excess & Surplus Lines]  market increased 14.5% in 2023, down from the peak year-over-year increase of 32.3% in 2021 and 20.1% in 2022. E&S direct premiums written totaled $86.47 billion during the most recent year compared to $75.51 billion in 2022.” 

Trends that are shaping the wholesale insurance landscape include:

• Consolidation: The wholesale insurance market has seen significant consolidation, with approximately 95% of the brokerage business now consolidated due to acquisitions of independent wholesale businesses by larger entities. 
• Specialization: There is a growing trend toward specialization, with wholesale brokers focusing on niche markets and complex risks, driving more activity toward specialized wholesale brokers. 
• Technological Integration: The integration of technology and Insurtech solutions is enhancing risk assessment, streamlining underwriting processes, and contributing to market growth. 

These developments underscore the dynamic nature of the wholesale insurance market.

Ensuring Compliance and Supporting Wholesale Insurance Professionals

Wholesale insurance provides a bridge between the supply and demand sides of specialized coverages. On the supply side, it provides access to markets where a carrier may not have underwriting expertise, or where the carrier is unable to service the needs of insureds. On the demand side, it allows businesses and individuals to obtain coverage for risks, amongst other things, that traditional and admitted carriers may not cover. 

Wholesale agents and brokers, in the form of either managing general agents or surplus lines brokers, provide access to carriers that provide these coverages. This ensures retail producers can place the appropriate coverages for their clients’ unique, high-risk, or otherwise complex needs. 

3H Compliance Group supports surplus lines brokers and MGAs with a variety of licensing, compliance, business formation, and policy and tax filing services. If you’d like to discuss how we can support your organization, please feel free to contact us. We’d be delighted to help.