Wholesale broker vs. Retail Broker

edited August 2020 in Dearie.Excess

I am a little confused as to the difference between a retail and wholesale broker. The wiki article says

"the wholesale broker must have a license in the home state of each insured they place with an insurer"

But I thought that for a retail broker "only the home state of the insured can require a broker's license." If that's the case, then the retail broker may be required to obtain a separate license in the state of each insured with which the he/she places insurance (if each insured's state requires a license)? Isn't that just as inconvenient as the situation with the wholesale broker?

Comments

  • Yes, and the source text seems to contradict itself on this point. If you read it carefully, it implies as you said that any broker, whether retail or wholesale, must have a license in the insured's home state. Here is what it says:

    • The NRRA prohibits any state except the home state of the insured from requiring that a surplus lines broker be licensed in order to sell, solicit, or negotiate surplus lines insurance with respect to the insured. Accordingly, a broker is only required to maintain one surplus lines producer license to place a surplus lines policy, i.e., a license (resident or non-resident) in the insured’s home state.

    So if the insured's home state is FL then only FL can require a license. But what if the insured'a home state is GA? Then GA can require a license so the broker still has to have multiple licenses if they want to do business in more than 1 state? Or maybe they are referring just to a single transaction? Maybe the business of the FL insured somehow spans more than one state but the regulation means those other states can't also require a license? Anyway, the text goes on...

    • For a wholesale transaction, the wholesale broker on each such account must have the appropriate license in the “home state of the insured” for each state where placements are made.

    This seems to imply that a wholesale broker is subject to somehow greater licensing regulations - from multiple states versus a retail broker that only needs a license from 1 state.

    I interpreted the text literally when I wrote the wiki but I do agree there's something missing. The portion of the reading that's on the syllabus is a highly summarized of the regulations and definitely seems to be missing part of the explanation. The fact that in 2015 the National Association of Registered Agents and Brokers or NARAB was created means there must have been a problem with wholesale brokers requiring multiple licenses. I think that's the key fact to focus on.

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