One of the more surprising things I have become aware of over the years is that many wholesale insurance brokers also place business as retail agents. I am not sure which is more surprising, the fact that many wholesalers really do this or that they actually get away with it!
But hey, lots of retailers act as wholesalers too, right? After all, one retailer placing business for another retailer who lacks the necessary market access and sharing the commission revenue for that placement is common practice. Such ‘co-broking arrangements’ have their shortcomings to be sure, but the approach seems to be a generally accepted way of building a book of business. If retail agents can act as wholesalers then wholesalers should be able to act as retailers, right?
The truth is when a wholesaler acts as a retailer, quite often their intent is to game the system. In these situations the wholesaler gets paid twice because they receive a wholesale level commission (typically 15% – 20%) and keep it all. How is this allowed to happen you might ask? Typically it’s because the wholesaler is not truthful with the underwriter about the role they are playing in the placement. Less frequently, but not uncommon in this soft market, the underwriter chooses to look the other way so he/she can put business on the books. Not every wholesaler placing business as a retailer is trying to game the system. However, even in situations where the appropriate retail commission is paid, the wholesaler still ultimately benefits at the expense of the very retailers they profess to serve.
Just as important, when a retailer works with a wholesaler that also acts as a retailer there is an obvious conflict of interest. As we all know, the existence of a conflict of interest does not necessarily mean inappropriate behavior will occur. But then good business practices call for the avoidance of conflicts of interest whenever possible. That way there is never even a possibility of inappropriate behavior.
The reality today is that healthcare focused retailers working with wholesalers that also act as retailers have good reason to be concerned about the potential for inappropriate behavior. When it comes to medical malpractice, these wholesalers have a greater ability to do harm to their retail customers than perhaps ever before. That’s because traditionally a wholesaler added value for their retail customers by bringing E&S and perhaps other alternative med-mal coverage options to the table. As the soft market cycle has dragged on for med-mal, wholesalers are increasingly able to access standard risk/admitted med-mal products. With such coverage options increasingly at their disposal wholesalers that also compete with the retail community are potentially a much greater threat to their retailer’s book of business.
In my prior blog article, 5 Ways Retail Agents Pay For Their Wholesale Insurance Broker, I make the case that retailers actually pay for their wholesaler in many ways. Working with a wholesaler that competes with the retail community is just another way retailers pay. In my opinion, no matter how you look at it the price of working with a wholesaler that also acts as a retailer is simply too high.
Give Ethos a call if you want to work with a medical malpractice expert that is dedicated exclusively to the wholesale model.