Knowing Where to Tap the Hammer: The Value of the Wholesale Broker Model

By: | February 23, 2022

Erich Bublitz is the Senior Vice President of AmTrust’s Excess and Surplus (E&S) division. He leads the AmTrust E&S team in supporting a unified national underwriting appetite focusing on specific industry segments while continuing AmTrust’s dedicated wholesale distribution strategy. AmTrust E&S offers clients a wide range of specialty insurance products through its three primary underwriting platforms: Specialty Primary and Supported Excess, Unsupported Excess, and Contract Binding.

An unfortunate trend has been happening where carriers are working towards disintermediating the wholesale broker community.

The thought goes that carriers can acquire the business from the retailers for less than the cost of the additional commission paid to wholesale brokers. The result is more E&S carriers using dual distribution or retail-only distribution.

Some markets are trying to go direct to insured with E&S solutions.

This is a decision that doesn’t properly value the wholesale/carrier relationship. If one only views the value of a wholesaler as an aggregator of business, then the calculus to acquire the business without a wholesaler makes sense. However, valuing a wholesaler as nothing more than an aggregator is a mistake with long-term negative implications.

There is a parable about an experienced repairman being brought in to fix a broken machine.

After looking things over, the repairman reached into his tool bag and brought out a small hammer and tapped gently on the side of the machine. The machine instantly lurched back to life. The repairman sent the owners a bill for $10,000. The machine owners were beside themselves that the man wanted to charge $10,000 for a minute of work and demanded an itemized invoice.

The repairman sent back an invoice that read “Tapping with hammer: $5.00. Knowing where to tap: $9,995.00”

Too often, E&S carriers are trying to value the wholesale relationship as the cost of tapping with the hammer. They look at an individual transaction and think that the wholesale broker is doing a limited amount of work and that, for less money, the carrier could do it themselves.

The carriers ask themselves, “Why do I need to pay for the wholesale broker to send me the account when I could go to the retailer and get the account myself?”

But the wholesale broker knows what coverage is needed, which carriers are best able to service that need, and how to explain non-standard E&S coverage to the retailer. The commission paid to the wholesale broker includes payment for expertise.

As an E&S carrier, when a wholesale broker brings a piece of business to us, we know that the broker understands the risk the insured is trying to insure against, we know the wholesale broker has already worked out what the needs are that cannot be met in the standard market, and we know that the wholesale broker has sent it to us because they have identified us as a market that can solve those demands.

We are also getting better information, because the wholesale broker knows what information they need to obtain for us before we have to ask for it. And all of this brings a tremendous amount of value that cannot be compared to the cost savings by going directly to retailers.

The wholesale community is small and tight-knit compared to the retail community.

Good wholesale brokers are experts in building and maintaining a trust relationship.

We, as the carrier, know who we are doing business with and the wholesaler knows who is underwriting his business for him.

This trust brings value to the underwriter/broker relationship that can’t be replicated.

When an underwriter trusts her broker, she is able to make faster decisions, because she doesn’t have to question everything or re-verify all the information. There is a level of scrutiny that isn’t necessary, because we know the broker is partnering with us and not just wanting to get coverage as quickly as possible for the lowest price. Relationships in E&S are long-term, so it is not in the wholesale broker’s best interest to burn a bridge with an underwriter. We as the carrier know that and account for that when we underwrite with a wholesale broker.

So, while it may appear that there are financial benefits to disintermediating a wholesaler from the E&S transaction, which is a near-sighted decision, aggregating the business and filing the taxes are not the primary value of the relationship.

The real value is in expertise—in understanding the insureds’ needs, in knowing the E&S markets, in explaining coverage, and in how to be a trusted partner with the carrier. E&S carriers are best served over the long-term in remembering the value our wholesale partners bring in knowing where to tap the hammer. &

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