MGAs, Wholesalers, E & S Markets for Insurance: What’s the Difference?

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As the property and casualty market continues to harden in commercial and personal lines insurance, agencies are forced to explore alternate options in placing their clients’ coverage. Use of the wholesale marketplace increases when underwriting is tightened, capacity reduced, or other reasons agents’ direct carriers might not be accepting new business (or conditionally renewing with less favorable terms).

There are many different types of insurance wholesalers. In order to find the best one for your needs, you need to understand the different types and what they offer. In this blog post, we will discuss the main types of insurance wholesalers: admitted wholesalers, managing general agents, and excess and surplus lines brokers. We will explain what each type does and how they can benefit you!  It’s not uncommon for agencies to have relationships with multiple wholesalers, depending on what each market offers.

Admitted Wholesalers: These brokerages provide access to markets you might not need to use daily and serve as an extension of your direct admitted markets.   Retail agents will use these wholesalers to access standard and admitted markets they’re not contracted with but whose products will benefit the agency and its customers.   Sometimes agents access these wholesalers when they are new in business and have no markets; other more established agencies often use wholesalers for one specific product, and thousands of “captive” agents see admitted wholesalers as their ticket to becoming an independent agent.   Things to consider when accessing these wholesalers include the availability of online ratings for personal and commercial lines and life if you sell it.  Does the wholesaler only offer AM Best A-rated products?  Who owns the business, and is it spelled out in writing?

Excess & Surplus Lines Wholesalers:  Sometimes, due to the characteristics of the risk, or the lack of admitted markets that offer the protection needed for a particular risk, agents seek coverage in the Excess & Surplus (E&S) marketplace.  Generally speaking, this means that the E&S broker is licensed by their state to offer carriers who are not admitted to transact business in the state but who are “authorized” to offer coverage there through a licensed E&S broker.  It’s generally the responsibility of the E&S broker to understand the financial condition of the carriers being offered.   Retail agents are cautioned to fully understand the terms and conditions of each quote received in the E&S marketplace, as often these are not standard from one carrier to another, can contain terms that could impact both the client and the agency, and the regulatory protections afforded to customers of admitted markets might not be available.  Some states have regulations that state the agent must exhaust the standard marketplace for a risk before considering the E&S market.

Managing General Agents (MGA) often offer a particular product(s) from an insurance company, and while their responsibilities can vary, can include quoting, policy issuance, endorsements, billing, and sometimes claims settlement.   To the consumer, they might seem like the insurance company whom they are acting on behalf of.  Some of us who’ve been around a few decades remember hearing that MGAs have “the pen,” giving them the ultimate authority of what can be written and what cannot, unlike a wholesaler who must strictly follow the guidelines given by its principal, the insurance carrier.

Some wholesale markets will offer more than one of these arrangements, and others perhaps a hybrid.  Some wholesalers offer only commercial lines, others only personal or life insurance, and yet there are others like who offer all three via instant online portals.  When agencies are selecting wholesaler(s) to partner with, these factors need to be considered, but the agent should also consider the commissions paid, who owns the business written, turn-around time on both new and existing business, automation offered, how claims are handled, and if the agency charges broker fees, their legality in the state where coverage is being placed.

Chenango Team
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