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12 December 2017

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Wholesale channel not more costly than retail: Conning

David Bull 7 October 2016

In a P&C insurance sector that is seeing significant structural change, there has been much discussion about removing links in the distribution chain and the potential for disintermediation.

But in a report commissioned by Napslo, Conning's research arm has concluded that wholesale distribution does not increase the cost of the transaction to the insured.

The study found that the total non-loss cost ratio for a composite of wholesale companies with $19bn in premium was 1 percentage point lower than a retail composite representing $61bn in premium.

Retail non-loss cost ratios were lower than wholesale in 2010 and 2011, but wholesale ratios were lower than their retail counterparts for the next four years.

And while the wholesale composite's commission ratio was consistently three to four points higher than retail over the period, it was offset by non-commission cost ratios which averaged nearly four points lower than the retail composite.

RSUI chairman and CEO Dave Leonard, who also sits as Napslo vice president, said the organization was not surprised by the findings.

"[It] concludes what many of us have long believed to be the case, that there is no additional transaction cost in leveraging a wholesale specialist to find the right solution for the insured," he said.

Napslo's immediate past president Hank Haldeman added: "There has been a long-held misconception among retail agents and brokers, insureds and others in the insurance industry that the wholesale distribution channel is substantially more expensive than the retail channel in the placing of specialty risks."

Haldeman, also executive vice president at The Sullivan Group, continued: "The perception that the wholesale distribution system increases cost to the insured was one that we felt deserved further study."

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