The insurance industry has never exactly been known for its simplicity. And on a certain level, that makes sense.
After all, its whole purpose is to help people and organizations prepare for the many risks they may encounter in the real world.
But what about when it comes to all the different names of the professionals who sell insurance policies?
Even for those who work within the industry, it can often be confusing trying to understand the exact differences between a broker vs wholesaler, and in turn, vs agent. How do they all fit within the insurance world?
While it’s true that there can be some overlap between these various roles, each serves different purposes.
Let’s take a closer look at these different roles and their distinct responsibilities.
What Is an Insurance Agent?
Insurance agents are what many people might think of first when they imagine an insurance salesperson.
The job of an insurance agent is to represent a carrier (a company that provides insurance) and sell an insurance policy to a client (the person or organization that needs coverage).
There are two different types of insurance agents:
- Captive agents: These agents only work for a single carrier, which means they will typically have a salary (although they may also make commissions). While they may provide quotes from multiple carriers as a comparison, they are only able to sell policies from one company.
- Independent agents: These agents work with multiple carriers, which means they are able to sell a variety of different policies. Because of this, they may work with smaller carriers that can provide more niche coverage solutions. Independent agents work mostly on commissions.
Insurance sales agents can work in many different industries, but will typically remain within the admitted market, which means the insurance products they sell will meet state regulations.
It should also be noted that, while agents represent a vital link between insurance carriers and policyholders, their primary responsibility is to the carrier.
Although they may work with the consumer to find them a policy that best fits their needs, their fiduciary duty remains with the carrier. This means that they can help buyers complete their application and can bind coverage.
What Is an Insurance Broker?
An insurance broker is very similar to an agent, with the important exception of who they represent.
Rather than working for the carrier, the job of an insurance broker is to find the right coverage for the policyholder, whether that’s an individual consumer or an organization.
As such, insurance brokers are not beholden to specific insurance products. Instead, their goal is to find the right coverage for whatever their client needs.
There are three different types of insurance brokers:
- Retail brokers: These brokers work directly with consumers to help them find policies that match their needs.
- Surplus line brokers: These brokers work with clients (typically businesses) that require coverage from non-admitted carriers, or those not regulated by the state. This usually means the client needs high-risk or hard-to-place coverage.
- Wholesale brokers: These brokers act as an intermediary between retail brokers and surplus (or non-admitted) carriers. Wholesale brokers include surplus line brokers, but the term is typically used to only describe their role as a mediator.
Because the job of a broker is to meet the coverage needs of the insured, brokers do not have the ability to bind coverage like agents do.
Brokers are also primarily compensated through commissions paid by the insurance provider. They may also charge fees for specific advisory services.
What Is a Wholesaler?
As compared with traditional insurance brokers and agents, wholesalers are a much less understood aspect of the insurance industry—and for good reason.
Although this segment is essential to many different types of organizations and businesses, it is often not as customer-facing as traditional insurance. It also tends to use terms interchangeably, which can add further confusion.
The first thing to know is that wholesalers work within the non-admitted insurance market. Also known as the excess & surplus (E&S) market, the non-admitted market encompasses insurance that is too complex, hazardous, or otherwise unique to be regulated by the state. This often includes industries such as construction, energy, and trucking that carry risks traditional, regulated insurance won’t cover.
So what do wholesalers do differently that allows them to cover these risks?
Unlike admitted insurance, wholesalers have the resources, knowledge, and staff to handle the additional compliance and administrative needs of non-admitted coverage. They also bring deep familiarity and strong relationships with niche business segments, enabling them to secure coverage where others cannot.
Here’s a closer look at some of the individual terms within the wholesale insurance market.
Wholesale Brokerage
A wholesale brokerage is an organization that helps coordinate and manage the placement of risks within the non-admitted insurance market.
It does this by negotiating quotes with external underwriters at insurance carriers, informing retail agents about available coverage options, and providing additional services in order to ensure that the agent can meet their client’s needs.
In this respect, wholesale brokerages like QuoteWell function as a clearinghouse for complex risks by helping to organize and streamline the information in this process.
Wholesale Broker
A wholesale broker, as the name might imply, works within the wholesale brokerage.
Their clients are retail agents in search of non-admitted insurance that can cover their customer’s risk. Wholesale brokers help provide this coverage by advertising the need to external carrier underwriters and negotiating placement solutions with them.
Because their role involves persuading these external underwriters to provide coverage for the retail agents, wholesale brokers can have more of a sales profile. As such, retail agents can be a particularly good fit for these roles.
Producer
Admittedly, this term is used more ambiguously within the wholesale insurance industry.
Wholesale producers can refer to both wholesale underwriters and wholesale brokers, depending on the context. Broadly, it is used most often by wholesale brokerages like QuoteWell to refer to internal sales roles inside the organization.
MGA and MGU
MGA stands formanaging general agent.
It is most often used to refer to wholesale brokers that have binding authority, which means they can underwrite a carrier’s insurance product and provide quotes on their behalf. They may also promote and sell insurance products, issue policies, and carry out a variety of other administrative tasks.
MGU stands for managing general underwriter.
Similar to MGAs, MGUs have binding authority to underwrite a carrier’s insurance product. However, they are typically more specialized and lack the expansive administrative capabilities of MGAs. While this makes them less versatile, one advantage of this is that they are often more streamlined.
The Flow of Risk Through the Different Roles
So what does placing insurance actually look like?
While there might be many different individual roles involved in moving a submission, the entire process is actually fairly straightforward. Here is what it looks like step by step:
- Direct market attempt: An insurance agent typically begins by searching for coverage through their standard direct appointments. This would be the fastest and most straightforward way to get insurance. However, it may not fit every need.
- Insurance broker engagement: If the agent cannot find coverage through direct appointments, they will employ an insurance broker to assess their needs in order to find more specific coverage.
- Coverage is assessed: If the insurance broker deems the risk appropriate, coverage will be provided. If the risk cannot be covered due to complexity or speciality, then the agent will have to engage a wholesaler.
- Wholesale broker engagement: In order to gain specialized access to the non-admitted market, the retail agent will enlist the services of a wholesale broker who can bring their in-depth knowledge and relationships to the task.
- Non-admitted insurance coverage: Through the more comprehensive services that an MGA or MGU can bring to complex and high-risk coverage needs, an insurance product can be placed and bound according to the client’s needs.
Of course, not all insurance placements go through all of these steps. Rather, the more complex a risk, the further down these steps they’ll go. That’s why wholesale brokers are so valuable when it comes to placing complex risk.
Learn What the Insurance Industry Can Do for You
Understanding the different roles within insurance will help clear up an often misunderstood industry.
But more importantly, for people like you within the industry, it can also help clarify exactly how it is structured to meet different types of risk needs.
Insurance is far more than the standard consumer products it is most known for. A wide network of specialized insurance organizations and individuals also work to help cover the hard-to-place risks that people encounter every day. It is one of the many reasons why insurance is so essential to business owners, non-profits, and all sorts of entities.
Interested in exploring more about the wholesale insurance industry?
Learn how QuoteWell is transforming how non-admitted products get placed—and how you can be a part of it.
