What is Wholesale Insurance?
Wholesale insurance provides coverage for small employer groups that can’t qualify for traditional group insurance. This type of insurance, also known as franchise insurance, offers individual policies to each member while covering the entire group. Typically offered by nonadmitted carriers—or insurance companies not sanctioned by state insurance departments—these policies cater to smaller groups and carry unique risks and benefits.
Major Highlights
- Specially designed for employer groups unfit for general group insurance.
- Ideal for businesses with fewer than 10 employees.
- Individual policies are uniform in provisions and affordable rates.
- Primarily provided by nonadmitted carriers, i.e., surplus or excess line carriers.
Understanding Wholesale Insurance
Wholesale insurance targets groups too small for standard group coverage—typically, those with fewer than 10 employees. Policies are individualized yet share consistent provisions among the entire group. Some employers may offer these policies as a part of their benefit packages while others allow employees to personally purchase them.
These policies are often provided by nonadmitted carriers, also called surplus or excess line carriers. These carriers don’t adhere to state regulations like standard insurance companies. While this might pose some financial risks, it allows more flexibility in pricing and coverage for unusual risks, including catastrophic events.
Typical products tailored for small businesses through wholesale insurance include:
- Environmental liability insurance
- High-risk coverage for chemical and flammable incidents
- Pharmaceutical and medical product liability insurance
- Privacy protection and identity theft coverage
- Safety-critical transportation products
- Structural integrity insurance for construction projects
Specialist Brokers: Your Wholesale Insurance Allies
Wholesale insurance brokers stand out with specialized knowledge in specific insurances or unique risks. Typically, they don’t directly interact with insured parties, except in employer-provided health and benefits plans. They offer invaluable expertise, particularly for challenging risks.
Wholesale agents work directly with retail agents to source appropriate coverage. Unlike their retail counterparts, wholesale brokers forge direct relationships with insurers. Managing General Agents (MGAs) and Surplus Lines Brokers are two types of wholesale brokers. The latter collaborates with retail agents and insurers but lack binding authority.
Wholesale vs. Retail Insurance: Contrasting Approaches
Unlike the more familiar retail insurance market, encompassing auto, home, and life policies from state-regulated admitted carriers, wholesale insurance involves specialization in niche and high-risk areas. Retail policies are typically under strict state regulation, providing various check-and-balances not present in wholesale policies, which gives wholesale carriers the leeway needed to manage unconventional risks.
Embracing Flexibility with Wholesale Insurance
While wholesale insurance comes with its challenges, notably around the financial stability of nonadmitted carriers, the flexibility it offers makes it an essential tool for niche situations and small groups. Larger, authentic nonadmitted carriers often enjoy strong capitalization and substantial backing from significant financial institutions, ensuring stability and reliability.
Related Terms: franchise insurance, group insurance, premiums, claims, insolvency.
