Brokerage Department

What is 'Brokerage Department'

A brokerage department within an insurance company specializes in obtaining insurance for difficult-to-insure customers through alternate insurance markets or by obtaining insurance at a more favorable rate than such a customer could find on his or her own. Examples include a smoker who wants to buy life insurance, someone who has had heart surgery and wants to purchase an individual health insurance policy and other high-risk or unusual situations.

BREAKING DOWN 'Brokerage Department'

Whereas customers who can easily meet insurers' underwriting criteria may obtain insurance directly from an insurance company without the assistance of an agent, for high-risk customers, an agent in the brokerage department will analyze a client's needs, research and review the available insurance options, make recommendations and secure the policy for the client.

Some of those insurance options may include alternative risk financing techniques (e.g., self-insurance, captive) or companies that provide coverages or services outside the realm typically provided by most traditional insurers. The alternative market may be utilized by large corporations, for example, to provide high limits of coverage over a large self-insured retention (SIR), or by smaller entities participating in a risk retention group (RRG) or group captive program.

However, the distinction between traditional and alternative insurance markets has become, and continue to gets, blurred over time, as many traditional insurers expand their offering of products to encompass alternative-type funding techniques and vice versa. Also, retrospective rating plans, especially paid-loss plans, are sometimes identified with the alternative market.

Insurance Brokerages and Alternative Capital

Specialty investments tied to insurance were developed in the late 1990s. These specialized funds were a major part of what became known as alternative capital. These dedicated investment funds in the reinsurance market initially purchased catastrophic (CAT) bonds. Alternative capital kept evolving and has been providing capital support for insurers via the reinsurance and retrocession markets for over 10 years. They sell balance sheet protection, enabling insurers to underwrite more policies and continue to cover risks.

The relationship that developed between reinsurance and alternative capital is a symbiotic one — the rate of return on capital that reinsurers provide and alternative capital seek is well matched. As a result, reinsurers have benefited from the influx of alternative capital into the sector.

While that benefit also helps insurance companies attain reinsurance at reasonable rates, the influx of alternative capital into the reinsurance market has not helped insureds directly. But that has recently begun to change. More recently, financing solutions having been growing in the retail-direct client accessed space.