Whether you call it an agency network, alliance, aggregator, association, collective, cluster, or something else, it’s increasingly common to see independent insurance agencies coming together for their mutual benefit. The advantages of such cooperation are obvious. It allows agencies to compete effectively with the huge networks of captives maintained by insurance carriers while still enjoying the benefits of their independent status.
Of course, as in so many relationships, success or failure depends on your choice of partner. While there’s likely a perfect network out there for any agency, not every alliance is the right fit for every agency. The group’s goals and values need to align with those of the prospective member. Agencies, in turn, need to be prepared to bring value to the collective. With that said, let’s take a closer look at some of the top benefits and common pitfalls of joining an agency network.
Finding the Right Fit for Your Agency
When deciding whether a particular network is right for your agency, you’ll want to get answers to the following questions:
Who owns the book of business?
Many alliances state that members have full ownership of their book of business. Be sure, though, that everyone understands what that means. It’s not uncommon to require that member agencies become “vested” in order to receive full ownership. You’ll also want to determine if there is a buyout fee or non-compete or non-solicit agreement for agencies that leave the group. The latter is particularly common if the alliance provides leads for its members.
Does their mix of business match yours?
Some associations focus on a type of business while others take a multi-line approach. If the latter is the case, consider carefully whether your agency’s focus aligns with the organization’s mix of business. For example, if you’re an agency that deals predominantly with life insurance in an association with a 95% P&C and 5% Life mix, you may find your choice of carriers more restricted than anticipated. Training and business solutions may also be a less than ideal fit. Of course, organizations looking to expand their scope of business may intentionally seek out agencies specializing in under-represented LOAs.
Do they offer access to the carriers you want?
Access to carriers is one of the biggest benefits of collective membership. Most insurance companies offer a dizzying assortment of programs and products, though. If you’re interested in a particular one, be sure to check that it is available under the organization’s carrier contract. Also, be sure you’re clear about production requirements and producer compensation rates and schedules.
Do they operate in the states you want?
The geographic area covered by an insurance cluster can range from a single state to all U.S. states and territories. Regardless of how many states the organization lists, keep in mind that they may not be “licensed” for all their carriers in all of those states. Additionally, some programs or products may be available on a more limited basis.
What costs are involved with becoming/being a member?
Fees to join an insurance network can vary greatly depending on its size, carriers, and the resources it offers to members. Additionally, in some states organizations can charge broker fees for individual pieces of business; and we’ve already mentioned the costs associated with leaving a group. Be sure that the verbal explanations you receive and the language in your producer agreement align. Also, don’t be overly optimistic about the impact joining the group will have on your production levels.
How much say will the group have in how you run your business day-to-day or on your long-term strategy? Every independent agency has its own culture and way of doing business. Belonging to an alliance is a great way to learn new agency management techniques, but too jarring a shift can cost you key team members. Understand what operational changes are optional and which are mandatory. Additionally, check to see what impact – if any – organization membership may have on your plan for perpetuating or selling your business.
What to Expect from Your Membership
Membership benefits vary among insurance networks, depending on their size and focus. Generally speaking, however, you can expect to receive help with the following challenges:
Smaller independent agencies, especially start-ups without a proven track record of production, often find it difficult to secure selling agreements with the most competitive carriers in their market. As members of a network, newcomers can be appointed under the group’s carrier contracts — effectively leveraging the experience of other members to make their agency more attractive. Even for established agencies, the collective bargaining power of a network can secure more favorable terms, such as higher commission rates.
Digital transformation is no longer a nice-to-have; it’s essential to your business’s survival. As new generations of customers and insurance professionals enter the market, however, the rate of change is accelerating rapidly. Still, the costs of adopting insurtech solutions can be prohibitive. Additionally, agency owners are often at a loss about which technologies are the best fit for their needs. Networks can help members go digital, both by providing expert advice on solution selection and by sharing development/purchase costs among their members.
While every agency can benefit from learning new ways to handle operations and personnel, agency management support is especially valuable for producers making the transition from captive to independent status. After all, one of the perks of being a captive is having someone to handle the “back office stuff.” Many networks enable members to outsource a wide range of needs including insurance licensing and regulatory compliance, marketing and lead sourcing, technical support and cybersecurity, call center services, etc. — often at significantly discounted rates. Some groups also help with premium financing and professional liability insurance.
Producer Development Resources
For insurance agencies, like most businesses, attracting and retaining talent is often the largest single overhead expense. Understandably, then, owners want to get the best possible return on their investment. Creating an in-house producer development program is often challenging, however. Top performers may be reluctant to step away from their routine to train newcomers. Agencies often end up falling back on “canned” training resources that don’t engage team members or truly reflect the business’s needs and goals. Networks offer a much wider experience base to draw on. Many maintain dedicated teams of educators and consultants to instruct members on best practices and help them create a growth strategy.
Making Your Agency Attractive to Insurance Networks
It’s important to remember that joining a network is as much a question of them choosing you as it is of you choosing them. That said, the requirements to join vary greatly from group to group. Don’t be surprised if a prospective network asks about any of the following:
- Industry experience (Check whether they count captive experience.)
- Premium written and revenue
- Loss history
- Staff size (This usually refers to licensed producers only, but ask to be sure.)
- Current book of business/client list
- Business plan, especially growth/new sales production strategies
- E&O or other professional liability insurance and your claim history
- Licensure & regulatory history
- Location/service area
- Professional network
Lastly, some networks are “by invitation only” or require referrals from an existing member. If you’re interested in such a group, check their website to see if they have a public list of members – some do – or check online sources such LinkedIn or Google to find individuals or agencies connected to the organization. Then, get busy networking!
Looking for more tips on finding the collective of your dreams? Check out these Spot On Insurance podcasts:
- Ep. 234: The Agency Cluster – The Benefits of Joining an Alliance, featuring Kenny Urbania of The Agency Collective
- Ep. 95: Uncovering Your Perfect Fit for an Agency Alliance, featuring Marcus Flesher of Pacific Crest