More and more, independent agencies—many from captive and exclusive agency channels—are joining groups, aggregators and clusters, rather than working on their own.
“The two top reasons that someone looks to join a network are carrier access and increased revenue,” explained Tracy Henry, marketing and agency relations with Pacific Interstate Insurance Brokers.
Adam O’Reilly, controller at Insurance Pro Agencies summed it up this way: “Being part of an agency network allows a scratch agency to immediately start earning higher commission percentages on new and renewal business, because the network is able to combine premium totals of dozens of agencies to achieve those higher tiers for the benefit of everyone in the group.”
Rex Hickling, president at Premier Group Insurance noted that most groups should be able to provide an agency with the market access needed for primary property-casualty product lines, “including a much larger bandwidth in commercial than most captive agencies are accustomed to.”
This is especially important when there are “geographic areas with greater cat exposure, tougher regulatory climates and other factors that can make market access a challenge,” he said. “This is an area where strength in numbers can be an advantage.”
Increased revenue is an important benefit of belonging to an agency network. Mr. Hickling said that many groups offer multiple streams of income to their agency-owner members based largely on the groups’ performance with insurance carriers.
Profit-sharing is a major advantage for a network and the biggest missed opportunity, Ms. Henry said.
“Aggregator is what some refer to an agency network as,” she explained. “This is an accurate description with respect to profit-sharing because we’re aggregating the premium of the network and therefore can earn higher profit-sharing.”
To get the most out of profit-sharing, a cost benefit analysis can be helpful. “It’s important to determine what you have to do get to the point to where you are making a profit,” Ms. Henry explained.
Mr. O’Reilly added that five important questions should be included in a cost analysis:
- At what premium level is the agent eligible for profit sharing bonuses and what is the bonus split?
- Does the group offer direct carrier appointments or must the agency submit business through the group’s in-house team, with no binding authority?
- Can the agent have carriers outside of the group without the aggregator sharing in those commissions?
- Does the group have the right of first refusal on the agent’s book of business if there is an offer on the business?
- Does the agent have the option to leave at any time and keep its carrier relationships?
The bottom line is that, “You can be a smaller, independent agency with the advantages of a larger agency when you are part of a network,” Ms. Henry concluded. “Independent agencies that are not part of a network are missing out. Not only does the network negotiate better profit-sharing agreements, but they can also withstand more losses and generate higher premium.”