European insurance buyers with in-house brokers say those operations are particularly important service providers at a time when their parent companies need as few distractions as possible.

In-house brokers, or “captive” brokers, provide their owners with much the same services as external brokers. In addition, however, they can provide revenue for their parent companies and provide a more direct link to insurers, according to several sources.

And as the global financial turmoil increasingly has demanded the attention of corporate management, a smooth-running brokerage unit that can generate revenue while managing risks is a useful tool, they say.

Captive brokers at some smaller companies, however, are coming under pressure as their parent companies seek to cut costs, some observers say.

Captive brokers are particularly common in Germany, where they have been widely used for decades and especially since the 1960s when federal law made it illegal for brokers and insurers to share commissions or make other payments to insurance buyers. Prior to the passage of the law, to secure a competitive advantage, brokers and insurers were able to make partial reimbursement of commissions to insurance buyers in an effort to win or maintain business. By forming captive brokers, buyers were able to keep the commission reimbursements in place.

Captive brokers do not appear to be suffering financial distress during the global downturn, sources say.

“The crisis is more or less a problem of financial results; broking is a service business and service is more robust in this form of crisis,” said Stefan Sigulla, managing director of insurance at Munich, Germany-based Siemens Financial Services GmbH, a unit of Siemens A.G.

That means companies with in-house brokers have a unit close at hand to provide critical insurance and risk management help when it is sorely needed, sources say.

In Germany, large commercial policyholders swear by their in-house brokerage operations. “There is no disadvantage,” said Guenter Droese, managing director and head of group insurance at Deutsche Bank A.G. in Frankfurt. “It is the best solution for big corporates.”

Axel Etzrodt, head of insurance at Deutsche Leasing A.G. in Bad Homburg, Germany, said his company's captive broker was set up two years ago to generate income and that has been a blessing as the economic crisis has taken hold.

The broker handles coverage for Deutsche Leasing and generates income by placing insurance for such exposures as automobile and machinery breakdown risks for the company's clients, he said.

“It's given us a chance to bring in more income through our insurance business,” Mr. Etzrodt said.

He acknowledged, though, that his department has faced increasing pressure from the parent to reduce expenses.

The practice of setting up captive brokers is so widespread in Germany that an association is in place to represent the interest of captive brokers in regulatory and legislative matters. The Bundesverband firmenverbundener Versicherungsvermittler und-gesellschaften e.V., or BfV, also holds a conference and provides other member services.

Hans-Otto Geiger, chairman of the Frankenthal, Germany-based BfV, said he believes more than half of the premium volume of large commercial risks in Germany are placed by captive brokers. There are more than 200 in-house brokers in Germany, he said. Seventy-five of those are with very large companies and are members of the BfV.

Mr. Sigulla of Siemens said captive brokers are in good shape to weather the financial crisis, in part, because they are legal entities, not departments within a company, Mr. Sigulla said. “If you have only an insurance department, it may be under pressure to reduce costs,” he said, whereas a separate entity can operate independently and generate its business and income without the same sort of pressure from the parent.

Direct access to insurers is another advantage to a captive operation, said Mr. Sigulla.

“I'm convinced it's a very good tool because it allows you, even in specialty markets, access to the underwriter” rather than filtering the placement process through an outside broker, he said.

Telecom Italia S.p.A., a Milan, Italy-based telecommunications company, places its coverages through Asscom Insurance Brokers S.r.L., a brokerage it owns with Aon Corp. and Milan-based broker Puricelli e Ghezzi S.r.L. Asscom has offices in Milan and Rome.

Paolo Rubini, Telecom Italia's director of risk management, said “a captive broker allows you to deploy your own strategies and manage your relationships with insurers.”

That close contact is important during the global economic downturn, Mr. Rubini said, because it means the captive broker has only its parent's interests in mind.

But captive brokers do not always eliminate the need for the outside intermediaries, sources note. Large companies with international operations often supplement their captive brokerage with help from brokers that can place foreign business.

Funk Gruppe GmbH, a Hamburg, Germany-based broker, works with captive brokers at parent companies that occupy the upper end of the middle market in size, said Leberecht Funk, its chairman. “Most do work with outside brokers,” he said of captive brokers. “They need access to international markets.”

Some captive brokers serve more of a risk management function than others, said Mr. Funk. Some are set up simply as insurance buying operations that are in place to realize cost savings through direct relationships with insurers, he said. Others are established with an eye toward improving risk management.

“The very, very large companies need to have risk management competence in-house anyway,” Mr. Funk said. But captive brokers may suffer if their parents are smaller companies looking to shave expenses during the financial downturn.

“Some of these companies may say they can only afford a certain budget for insurance expenses,” said Mr. Funk. “So it would cause a strain on their ability to provide those services.”