What is a Wholesale Broker

Tennant Risk Service is a wholesale insurance broker. Wholesale insurance brokers specialize in providing insurance to unusual or harder to place accounts. A wholesale insurance broker ("wholesale broker" in this article) is a licensed broker providing specialized insurance products to retail insurance agents and brokers ("retail agents" in this article). A wholesale broker will utilize insurers (also called "markets") who can consider accounts that the retail agent cannot place with their standard markets. These insurers underwrite specialized or hard to place insurance.

Because of their specialization, wholesale insurance brokers are
wholesalers - they provide their products, expertise and services to other insurance agents and brokers. These other insurance agents and brokers are called retail insurance agents or brokers in the insurance industry.

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, or E&S, and is also referred to as non-admitted. The surplus lines market is critically important to wholesale brokers, and most wholesaler brokers write more business in the surplus lines market (with surplus lines insurers) than in the admitted market (with admitted insurers). The surplus lines market is somewhat more complicated to utilize than the admitted market, but is easily handled with an understanding of what is required. A description of the Surplus Lines Market can be found elsewhere on the Tennant Risk Services web site.

The Surplus Lines Market

The surplus lines market is a small but important segment of the property casualty insurance market. The surplus lines market represents a significant segment of the commercial lines insurance market in the US (2002 figures):

Total US property/casualty insurance premiums - $407 billion
Total US commercial lines premium - $227 billion
US Excess & Surplus line market - $ 26 billion

Regulation, Financial Strength & Solvency

Each state insurance department regulates surplus lines insurers operating in their state, including monitoring the solvency of the insurers. However, 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. Generally, accounts are only written in the surplus lines market after they have been declined in the standard market. In addition, coverage placed with surplus lines insurers is generally not protected by state guarantee funds.

Surplus lines insurer solvency has historically been strong. A.M. Best (www.ambest.com) has conducted an annual solvency study of the excess and surplus lines market for a number of years, completing its 10th study in 2003. Not only does the study address the financial strength of the surplus lines market, it also provides an excellent summary of the operations of the surplus lines market. Some comments from the 2003 study:

Surplus lines carriers maintain a high level of financial strength and strong operating results, which are supported by sound underwriting guidelines and effective risk-management techniques - p 3.
The surplus lines market historically has been viewed in a negative light by the public and the insurance industry…However, A.M. Best's analysis of this market segment refutes this view - p 4.
Over the past five years, operating results generated by the surplus lines market have continued to outperform the overall property/casualty industry - p 3.
The surplus lines market historically has maintained a lower level of premium and reserve leverage than that of the property and casualty industry - p 4.

In addition, a number of the largest surplus lines insurers are well-capitalized subsidiaries of the largest insurance and financial services companies in the US.

Underwriting

Because the specialty lines market is designed to write risks that do not easily fit into the underwriting and rating "boxes" of standard companies, underwriting is designed to be flexible. Typically, each risk is underwritten and rated on its own merits, and the 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 that might not occur in the standard market. This is very different from the standard market and is to be expected.

Each underwriter will have his or her own requirements for information, and the standard Acord form may not be acceptable for many accounts. The professional liability, directors & officers, employment practices, and other lines of business handled by Tennant Risk Services are highly specialized and require specialized applications to assist the underwriters in making their underwriting and rating decisions. While Acord forms are not acceptable, Tennant Risk Services has applications on its web site for these coverages.

In order to work with a wholesale insurance broker such as Tennant Risk Services an insured must utilize a retail insurance agent or broker. Tennant Risk Services then works with this retail insurance agent or broker in providing specialty insurance for the insured.

Working with a retail agent or broker provides the best level of service, and does not impact the cost of the insurance. At Tennant Risk Services we can provide the name of a retail insurance agent or broker who can assist you in obtaining your necessary insurance.

Not to be confused with Tennant Company.