What Does Coverholder Mean?
A coverholder is a party that helps insurance companies write policies, collect premiums, and perform other duties in markets that are outside the insurance company's headquarters or normal territory. Coverholders play a key role in helping insurance companies expand their operations and reach new markets or regions.
A coverholder can have full or limited authority to underwrite on behalf of the insurance company. This is known as a binding authority. If a coverholder has binding authority, it will usually issue the insurance documentation and handle claims. If the coverholder can also settle the claims, this is known as a claims authority.
The benefit of coverholders to insurers is that coverholders not only take some of the labor of expansion out of the insurer's hands, but they also bring extensive knowledge of the local territory. They are the trusted local connection between the market and insurance companies. Coverholders, meanwhile, also benefit tremendously from partnering with steadily growing insurance companies. Helping them expand into new markets can be very profitable and cost-effective due to the reduced overhead costs or opening their own offices locally.
Coverholders are often the first point of contact for clients and hold the client relationship which makes them vital to market growth. Typically a coverholder would be knowledgeable in the following areas:
Market features - demographics, economy etc.
Local regulations - rules, laws and unique regulations.
Competitors - other area insurance providers.
Customer preferences - rural needs, vs urban needs.
This expertise allows the insurer not only to expand but to improve the odds of engaging in a commercially viable expansion.