Working with a Wholesaler
What follows are frequently asked questions regarding working with a wholesaler. Please contact us today to learn more.
What is a Wholesaler?
A wholesale insurance producer (“wholesale broker”) is a licensed producer providing specialized insurance products and expertise to retail insurance agents and brokers. A wholesale broker will utilize insurers who specialize in hard to place insurance, and who will consider accounts that the retail agent cannot get placed with standard insurers.
Wholesale brokers operate in the Specialty Lines Market, which is composed of both admitted (or licensed) insurers and surplus lines insurers. “Surplus lines” is short for excess and surplus lines, which is commonly referred to as “E & S” or “non-admitted.” The surplus lines market is more complicated to utilize than the admitted market which is why expertise helps.
Yes. A surplus lines license is not necessary for business placed by a wholesaler with an admitted insurer.
Can a Wholesaler Work with Both Admitted and Surplus Lines Markets?
Are Surplus Lines Markets Safe?State insurance departments regulate surplus lines insurers operating in their state, including monitoring solvency. Surplus lines insurer solvency has historically been strong. A number of the largest surplus lines insurers are well-capitalized subsidiaries of the largest insurance and financial services companies in the US.
Unlike admitted companies, surplus lines insurers have freedom from rate and form filing. In other words, they do not have to file insurance rates and policy forms with the insurance department. Coverage placed with surplus lines insurers is generally not protected by state guarantee funds.
How Does the Process Work?
Each underwriter will have his or her own requirements for information. Standard application forms may not be acceptable and underwriters may require specialized applications or supplements. In order to ease the burden on clients during the quote process, underwriters will review and quote from other applications and require their own application if coverage is bound. While this means that clients complete only one application to start the process, it can create problems if a critical piece of information is missing. While rare, underwriters can choose to withdraw their quote or change terms upon review and receipt of their application. The solution is to provide all information the underwriter might need early in the process, and then to provide the underwriter’s own application with the request to bind.
Because the specialty lines market is designed to write risks that do not easily fit into the underwriting guidelines of admitted carries, underwriting is designed to be flexible. Typically, each risk is underwritten and rated on its own merits. An underwriter’s own experience, expertise and perspective heavily impact the resulting terms and conditions. The underwriter will apply rates he or she thinks are appropriate, and provide tailored coverage as well. This can lead to variations in the terms and conditions quoted by various insurers for the same account. This is very different from the admitted market and is to be expected.
The Placing Process
The process of placing business with a wholesale broker is very similar to the process you would use to place business with your standard markets. While no two placements are exactly alike, the process works somewhat as follows:
- The account is submitted to the wholesale broker with the appropriate application and supplementary information.
- The wholesale broker will utilize its expertise to review the submission information, analyze the risk and any addition information needs, and identify potential markets.
- An account presentation will be made to each market, and terms and conditions (or declinations) will be obtained and additional information may be requested. For each account it is not unusual for a number of markets to decline and a number of markets to quote. Any negotiation for terms and conditions can take place at this point. Any proposal may be on an admitted basis or a surplus lines basis depending on the market, coverage and account.
- The wholesale broker will present the proposals to you, and you can then work with the wholesale broker and your client to make a determination of coverage.
- When an order is provided, many wholesale brokers, including AP Advantage, have very specific expectations for paperwork, surplus lines compliance and payment which will be communicated to you.
A Word About Premium Taxes and Paperwork
Unlike admitted insurers, surplus lines insurers do not pay premium taxes. Therefore, premium taxes, often called “surplus lines taxes,” are collected by the wholesale broker in addition to the premium and then paid to the insurance departments in each state. In addition, some specialized paperwork is typically required to show that the insured is aware that the coverage has been placed in the surplus lines market and that the agent has made a diligent search of the admitted market without finding coverage. The diligent search is typically evidenced by the retail agent with at least three declinations for the account from admitted market underwriters.
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