Independent insurance agency principals naturally pursue carrier appointments. Carrier appointments give them markets to choose from for each client, relationships that can grow in importance over time, and the potential for lucrative profit-sharing. For new or small agencies, though, these appointments can be difficult to get, particularly with large national carriers.
Enter agency networks, also known as “aggregators” or “clusters.” These are groups of agencies that have contracted to band together for mutual benefit.
According to Al Diamond of Agency Consulting Group, these networks have been around for 50 years. They started as informal alliances of agencies who needed markets, often operating without formal contracts.
Success was harder for smaller agents before they existed, says Joe Totah, president of Strategic Agencies, LLC (publisher of www.agencyequity.com). Agencies had to get direct appointments with carriers directly and meet minimum production targets to keep them. Meeting these targets for multiple carriers was difficult for small agencies, forcing them to limit the number of carriers with whom they had appointments.
“It was harder for the smaller agency to have access to multiple direct carrier appointments,” Totah said. This limited their options for placing more difficult accounts. “Also, because carriers have very high requirements for profit sharing, it was harder for smaller agencies to participate in these additional revenues.”
Agency networks helped to solve these problems. A single agency contracting with a carrier may have trouble hitting production targets. A network of 60 agencies contracting with a carrier, where the carrier treats the network as if it were a single agency, should have a much easier time hitting goals. Also in many cases, Agencies get their own appointment, but carriers see it as a branch of a bigger agency (the network).
Totah says this has opened the doors for smaller agencies to represent multiple carriers that would not appoint them on their own. A small agency that might have had one market for construction accounts now might have access to four or more. This in turn helps it write and retain more accounts.
The benefits go beyond market access and commissions. “(Networks) also allowed the smaller agency to participate in profit sharing,” Totah said, “since the results are for the production of the entire group and not just their own.” Small agencies are not the only ones finding advantages in networks; even agencies that are a little larger than small use them, too. “Even these agencies can’t access every carrier,” he said. “They benefit from greater pooled production with the other agencies, and this helps them improve upon their profit sharing revenues.”
The exact number of existing networks is unknown, but it has been estimated that almost 50% of independent agencies are affiliated with one. Networks have grown to the point where they formed their own association in 2017 – the Insurance Networks Alliance (INA). The organization’s annual conference last winter drew more than 250 people, including representatives from 44 networks.
Totah expects to see networks continue to grow and thrive for the immediate future. “Carriers are getting used to having this layer,” he said, “and they provide valuable services to carriers, such as recruiting and profit sharing management. Also, more and more captive agents are becoming independent agents and these platforms are needed to help start and house these smaller agencies over the long run.”
To Totah’s point, carriers like Nationwide and Allstate traditionally sold through captive agents but now rely on them less. More captive agents are starting independent agencies. These small new agencies will need new markets but will probably have trouble making carriers happy on their own. It is likely that the marketplace will continue demanding the solutions that agency networks provide. What started as a handful of networks 50 years ago will keep growing to provide them.