What Is Wholesale Insurance?

Wholesale insurance refers to coverage for employer groups that are too small to qualify for true group coverage. A wholesale insurance policy is also known as franchise insurance. It covers an entire group, though individual policies are written for each person that is to be insured. These kind of policies are offered by nonadmitted carriers, or insurance companies that aren't approved by the state's insurance department.

Key Takeaways

  • Wholesale insurance refers to coverage for employer groups that are too small to qualify for true group coverage.
  • Wholesale insurance is sold to groups that aren't large enough to get typical group coverage, usually with fewer than 10 employees.
  • Policies come at individual rates, but normally contain the same provisions.
  • Wholesale insurance are normally offered by nonadmitted carriers—also known as surplus line or excess line carriers.

Understanding Wholesale Insurance

Wholesale insurance is sold to groups that may not be large enough to get typical group coverage. They are essentially provided by companies with fewer than 10 employees. Plans come with individual contracts, but generally contain the same provisions for all members of the group. Some companies allow employees to purchase a policy while others pay premiums as part of employee benefits package. 

Wholesale insurance are normally offered by nonadmitted carriers. These providers are also known as surplus line or excess line carriers. These companies don't necessarily have to follow regulations outlined for insurance companies by the state. As such, policies offered by nonadmitted carriers can be risky because they may not guarantee claims if the insurer becomes insolvent.

Wholesale insurance may be risky because carriers may not guarantee claims if they become insolvent.

Products for small businesses offered through wholesale insurance vary and generally include the following:

  • Environmental liability products
  • High-risk products for chemical and flammable incidents
  • Pharmaceutical and medical products against product failure
  • Privacy protection products against identity theft
  • Products that are critical to safety for transportation
  • Construction-related structural integrity products

Insurance wholesalers rarely have direct contact with insured parties except when it comes to employee benefit and health plans. Because nonadmitted carriers don't operate under state insurance laws, they have more pricing flexibility to ensure against unusual circumstances such as catastrophic events. While there is certain risk that comes with some nonadmitted carriers, the fact that they operate outside of state insurance laws shouldn't be a red flag of financial instability. State licensing, filing, and reporting requirements are simply different for these carriers. Larger nonadmitted carriers are usually well-capitalized subsidiaries of major financial services companies.

Special Considerations

Wholesale insurance brokers often possess specialized expertise in a particular line of coverage or in a line of coverage that is unusual and/or have greater access to or influence with certain insurance markets, which is especially valuable when dealing with a difficult-to-place risk.

Wholesale insurance agents place business brought to them by retail agents. Unlike a retail broker, wholesale brokers have a direct working relationship with the insurer, whereas the retail agent who produced the business does not. The same broker can function as a retailer or wholesaler, depending on the specific situation. 

There are two types of wholesale brokers: Managing general agents and surplus lines brokers. The latter work with retail agents and insurers to obtain coverage for the insured. Unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer.

Wholesale Insurance vs. Retail Insurance

Wholesale insurance coverage is unlike the retail insurance market. Most of us are used to the retail insurance market, where we buy car, home, and life insurance. Policies in this market are normally underwritten by carriers who are admitted, or companies that are licensed in the state in which the policy is sold. Admitted carriers are regulated by the state, and broker-agents are also held to regulatory standards by the state as well.