Insurance agents: Although many people use the terms interchangeably, insurance brokers and agents have different roles. Agents owe their primary duty to the insurer they represent. In their dealings with the public, they act as an intermediary. Their primary responsibilities are to fill out and process applications properly. They have no obligation to analyze your risk needs and ensure the coverage you buy is the right kind or amount, although many will do this.
There are two kinds of insurance agents: a captive agent represents one insurance company and sells only that company’s products. An independent agent represents more than one insurer and can present policies from different insurers for you to compare.
Insurance brokers: Insurance brokers represent their clients rather than the insurer, owing their legal duty to the client. They work with clients to determine their insurance needs, then survey the market to find a selection of policies that might meet your specific needs and circumstances. Both agents and brokers receive commissions on their sales; brokers must disclose their commissions. Many brokers also work on a fee basis.
If you have special insurance needs, your insurance agent or broker might turn to one of the following:
Managing general agents: Typically, an insurance agent or broker will take your application and submit it to the insurer for underwriting. During this process, the insurer will evaluate the risk of loss your business presents and how much it should charge to cover that risk. Insurers often automate the underwriting of simple risks; professionals called underwriters evaluate more complicated risks.
Sometimes, an insurer will give an insurance broker underwriting authority. These agents are called managing general agents. They can bind policies (commit to sell you a policy), underwrite and price policies, and even settle claims. Insurers often use MGAs for specialty lines of insurance, such as professional liability, that require special expertise. They might also use MGAs to write more common lines of insurance in rural areas where they don’t want to set up a branch office. Your regular (retail) agent or broker will act as the go-between with an MGA if needed.
Wholesale agent/excess and surplus lines agent: When your insurance broker cannot find the coverage you need in the admitted markets, he or she might turn toward a wholesale agent. A wholesale agent acts as an intermediary between a retail agent (your insurance agent or broker) and a non-admitted insurer. The marketplace of non-admitted insurers is called the wholesale market, or the excess and surplus (E&S) market.
Why is there an E&S market? State laws regulate the insurers that do business within their borders. When an insurer is licensed to do business within a particular state, it is called an “admitted” insurer. State insurance departments regulate these insurers, which must write policies that conform to the “rate and form” regulations of that state.
Sometimes, a company cannot find the coverage it needs in the admitted markets. Perhaps its business is too risky, it’s had a recent heavy loss, or the risk just falls outside normal underwriting standards—for example, an older building or new product line. Because non-admitted insurers do not have to conform to rate and form regulations, they have more flexibility than other insurers. This allows them to write policies for many risks that admitted markets won’t cover.
Non-admitted insurers are not subject to state licensing, so going to the non-admitted market involves a bit more risk for policyholders. Your policy won’t be covered by the state’s insurance guarantee fund in the unlikely event the insurer becomes insolvent, and you might not have access to certain consumer protections offered by the state’s insurance department. However, according to the American Association of Managing General Agents, “Most states require that E&S carriers submit financial information, articles of incorporation, list of officers, and other general details. They also cannot write insurance that is typically available in the admitted market [and]…may only write a policy if it has been rejected by three different admitted carriers.”
Agents who sell excess and surplus lines must have a special license and meet specific education and continuing education requirements. Your retail agent must go through one of these agents to place your insurance in a non-admitted market.
Syndicates: Lloyd’s of London is the most famous example of a syndicate. Lloyd’s is not an insurance company. Instead, it serves as a market where individuals and companies with specialized expertise in many different lines of insurance can meet to bid on covering hard-to-insure risks. They come together temporarily as syndicates for a specific insurance transaction. At Lloyd’s, more than one syndicate may share in a risk, and members are responsible for their own profits and losses on the risks they choose to underwrite.
A registered Lloyd’s broker can place business in the Lloyd’s market and negotiate terms and conditions on behalf of clients. Lloyd’s is not an admitted insurer, so only syndicates approved by the National Association of Insurance Commissioners can underwrite U.S. business.
We can help you with most of your business insurance coverages. When it comes to extraordinary needs, we’ve developed a network of other experts we can call upon to help you when necessary.