What is a key difference between service companies and coverholders?

A key difference between service companies and coverholders lies in their ownership and operational structure. Service companies are often wholly owned by managing agents, which allows them to operate directly under the guidance and policies set forth by those agents. This close relationship typically means service companies can provide specific services that align with the managing agent’s vision and regulatory requirements.

In contrast, coverholders are independent entities authorized by insurers to bind coverage and issue policies, but they operate separately from the managing agents who may not have an ownership stake in them. While coverholders play a crucial role in facilitating the insurance process, including underwriting and issuing documentation, their independence from managing agents differentiates them from service companies.

Understanding this distinction is important, as it highlights how the operational dynamics and ownership structures influence the roles and responsibilities within the insurance ecosystem.