The profession of insurance broker

Shaken by illicit over commission scandals involving brokerage giants in the United States, the business is confronted with major challenges that are likely to jeopardize the mere existence of many of those firms.

Insurance or reinsurance broker: definition and payment

Insurance brokerage is a service provided to industrials or to individuals. This professional activity of intermediary can be exercised in an individual way or in the form of a commercial company. The system of their payment is traditionally based on commissioning.

While the agent is mandated by the insurance company that appoints him by treaty and provides him or her with territorial exclusivity, the broker is mandated by his customers whom he or she represents and defends their interests. The broker is a salesman of liberal profession whose task is to approach people who wish to underwrite a policy. His duty consists in introducing an insurance candidate to the insurer in order to conclude a contract.

The broker works for the insured. His clients are generally made up of firms that are exposed to major and complex risks, hence their recourse to his or her competence and expertise as regards the search for coverage and for risk management counselling.

The emergence of new risks [5] such as terrorism, pollution, technological risks, corporate management-related liability and the rise of disputes have made firms suffer from growing difficulties in covering their risks, hence their growing urge to have recourse to these professionals in order to meet their needs.

Reinsurance brokerage is the service of client representation, that is, the assignor insurance company providing service for the reinsurers so as to seek and or place a reinsurance cover.

The evolution of the insurance broker's profession

Between 1980 and 1990, there emerged new actors in the division of insurance: banks and direct marketing, which has remodeled market shares distribution. The counters of banks and financial establishments have become the main distributors of life and capitalization products.

In the light of corporate demands requiring a comprehensive charge of the insurance file, the profession of a broker has witnessed a growing diversification of its activities and functions shifting from technical know-how to a culture of consulting. This extension of the brokerage mission has given rise to new services:

Insurance brokerage

• Corporate audit,
• Consulting, design and management of self-assurance mechanisms
• Management of alternative risk transfer (ART)
• Contingency solutions for the company’s staff
• Captives’ management
• Merger-acquisition consulting
• Actuarial services
• Assets management

Reinsurance brokerage

• Corporate audit
• Actuarial consulting
• Claims liquidation
• Risk securitization [6]
• Catastrophes’ management
• Internet and computer software systems
• Dynamic financial analysis

Thanks to considerable investments in new technologies, brokerage firms have mastered high-degree-competence in the field of risk categorization. The improvements made in the methodologies of risk analyses enabled them to rise from the rank of mere providers of elementary services to that of consultants proposing a wide range of services that are remunerated by honoraries.