Insurance Broker Regulation

Regulation Every state in the union regulates insurance activities that occur within its jurisdictions. Wholesale insurance brokers are no exception to this oversight, regardless of the fact that they are free agents and not associated with insurance companies. In an interesting twist, however, such agents don't have to provide all the form filing necessary for normal agents and insurers. Specifically, their rates and policy contracting forms don't have as much oversight restriction. This gives wholesale agents far more freedom under regulation to write up custom policies outside of the normal boundaries of traditional insurance coverage. However, consumers should also understand that policies generated from the surplus line market only generally occur after they have been denied as a coverage proposal in normal traditional markets. Additionally, when a coverage policy is achieved, many states will not back up it up with state guarantee funds as they do with traditional policies. So if the policy fails to provide its coverage promised, an affected consumer may find himself being cheated. That said the market has historically proven itself to perform and not go insolvent. In fact, when studied independently, the surplus line market and its brokers in 2003 showed significant solvency and significant market strength. These features were made possible by safe underwriting rules that were adhered to by agents and a strong focus on risk-management. Over a measured five year period the surplus line market in fact outperformed comparable markets in property and casualty where in theory controlled agents are much more restricted with oversight. For the consumer the benefits of a strong wholesale market are also seen in lower premiums and reserves. In short, consumers pay less through the efforts and success of wholesale insurance brokers for policies than they would if the same policy was bought through a regular agent, assuming it was available.

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