What is 'Wholesale Insurance'

Wholesale insurance is coverage for employer groups that are too small to qualify for true group coverage. It is also known as franchise insurance. A wholesale insurance policy covers an entire group, though individual policies are written for each person that is to be insured.

BREAKING DOWN 'Wholesale Insurance'

Wholesale insurance is sold to members of a group with rates based on individual rates, typically with some type of discount based on expense savings. Wholesale health insurance, for example, is essentially an individual health plan that is provided to groups of people in companies that have fewer than 10 employees. In this case, each employee can purchase a policy, or in some instances, the employer would pay the premiums as part of an employee benefits package. 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.

Insurance wholesalers rarely have direct contact with the insured except in instances such as employee benefit and health plans. Because non-admitted carriers don't operate under state insurance laws, they have more pricing flexibility to ensure against unusual circumstances such as catastrophic events. That non-admitted carriers operate outside of state insurance laws is not red flag signaling financial instability. State licensing, filing and reporting requirements are simply different for non-admitted carriers. Further, larger non-admitted carriers are usually well-capitalized subsidiaries of major financial services companies. Due diligence however, demands that you check A.M. Best to determine the financial stability of any insurance company you're considering as your carrier.

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 the retail agent and the insurer to obtain coverage for the insured; but unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer.

Wholesale Insurance Products

Examples of wholesale insurance products for small business are high-risk products for chemical and flammable incidents; safety-critical products for transportation; structural integrity products for construction; pharmaceutical and medical products against product failure; environmental liability products; and privacy protection products against identity theft.

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