From their beginnings in the 1970’s, insurance agency networks have grown to become a significant distribution channel. There are no reliable estimates as to the current number of networks. However, a 2015 survey by Channel Harvest Research showed that one-quarter of insurance agents work for an agency that belongs to a network. Almost three-quarters said their agencies are very unlikely to leave their networks.
The networks vary widely in size. The largest ones, such as New Hampshire-based SIAA, Inc., boast thousands of members. Large membership numbers produce large revenue numbers. SIAA reported 2014 property-casualty revenue of $750 million. While that number is extraordinary, 10 of the 20 largest agency networks in 2014 had revenues greater than $55 million.
Acquisition of new members is driving much of networks’ revenue growth. SIAA gained 410 new members in 2014, boosting its member count to 5,300. During its 19-year history, Pacific Interstate Insurance Brokers (PIIB), a network in California, has grown from five members to more than 180. They produced more than $62 million in revenue in 2014. Combined Agents of America (CAA) started with a half-dozen agencies in the Austin, Texas area in 1997. It now ranks sixth in terms of revenue, at $92 million produced by 58 members.
Not all networks emphasize size of membership. Some focus instead on the size of each member. Insurors Group of Texas has only 12 agency members. However, the group requires an agency to produce annual commission income of at least $2 million before it can be considered for membership.
Some networks are driven by new entrants to the insurance industry. Phil Tuccy of Insurance Group Consulting has seen a recent trend of financial product agents forming groups to grow their revenues. His business had 25 such clients last year.
Growth has enabled networks to offer access to an increasing number of carriers. CAA’s 58 members have access to 29 carriers. PIIB offers 48. The Iroquois Group, based in Olean, New York, represents more than 75 carriers. PIIB President Larry Manning cites strong carrier relationships as a defining feature of successful networks.
They also intelligently manage their growth. Manning says, “Most but not all clusters today have fairly tight standards in what type of agencies they will appoint, and more are also expecting continuous performance to maintain their affiliation.” Tom Braniff, an attorney and former agent who helped found CAA, says, “Successful networks are highly selective about who they will admit. They look at factors like geography, the agency’s character, and its underwriting performance.”
Successful networks do not admit new members and leave them to their own devices. Among the characteristics of successful networks cited by Manning are:
- Strong screening of new affiliates before admission
- Careful management of profit sharing and of individual agency performance
- Willingness to terminate affiliates who are problematic from a profitability or relationship perspective.
Networks have evolved in different ways. According to Al Diamond of Agency Consulting Group, some are dominated by one agency. The other agencies are smaller operations whose owners cannot yet afford to retire. They in effect become servicing agencies for the dominant player.
Another type of network is what Diamond calls a “virtual insurance agency.” A VIA has central management, but each member agency is a shareholder in the network. The members act as sales agents for the VIA. Diamond predicts that every state will eventually have at least one VIA.
Networks have become larger and more sophisticated over the past 20 years. Their relationships with their members and their services have also changed. Those changes will be the subject of the final part in this series.
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