A question we often get at AgencyEquity is “What is the best agency network to join?” The problem with this question is that there are different options that serve different needs. What may be good for one agency may not be good for your agency. While some may want a turnkey system that provides them with everything they need to run their agency, others may just want to take advantage of the carrier appointments offered by the group. Because there are so many things to consider when joining a group, I will go over a number of things a prospective member should investigate before joining a group.
Note that agency networks are also known as a “cluster,” “aggregator,” “alliance” or even a “franchise.’ However, in recent years, the term “Network” has become more of a general term for all these types of organizations.
How Much Will It Cost?
In most cases, a group will charge you an initial fee to become a member. This is usually a one-time flat fee, such as $5k or $10k. Some groups may not charge an initial fee, but their ongoing costs or exit fees may be higher. The key is to look at all costs, including the initial fee, monthly fees or commission splits, and exit fees (this is the fee they charge when you leave the group). The “Exit Clauses” section later on in this article goes into more details about how this can cost you.
So, what are the ongoing fees for an agency to be a member of a network? In some cases, the ongoing fee may be a flat monthly fee, or it may be a small percentage of your total commissions. For example, say a group takes 5% to 10% of the total commission volume of the agency. In that case, if the carrier pays 15% commission, 10% would amount to 1.5% of this, and your agency would net 13.5%. A flat fee is good for established agencies that already have built-in revenues. It can also work well for an agency that is well funded and is planning to grow very fast. If you are not well funded and don’t expect to grow very fast, giving up a small percentage of your commissions may be the way to go. It’s best to do a 5-year projection and see which option is best for your agency.
Who Pays the Commissions?
Some groups have all commissions go to them directly, and they in turn pay their agency members once they receive and assign these commissions, while others will have commissions go directly from the carrier to the agency. Another method is a combination of these two, depending on each carrier. If you care by whom you get paid, then this is a question you should ask the group before you join.
Profit Sharing and Contingencies
Profit sharing is when the group gets underwriting profits from the carrier and shares it with their agency members. This is a huge part of being in a group, because pooled profit sharing percentages are much higher than an agency can get on their own. When you’re investigating which network to join, ask what percentage of the total profit sharing is shared with its members. Also, find out if the network passes on the full commission to the agency when they negotiate higher commissions or contingencies.
While many of us have developed a habit of signing a contract without reading it, most especially on small ticket items, not reading your agreement would be a huge mistake in this case. Furthermore, it’s always best and well worth it to have any group agreement reviewed by an attorney. Not doing so can leave you in a very difficult and unpleasant situation if there is a clause you don’t understand. Your agency will likely make millions over the course of its existence, so paying an attorney for a few hours of time should run less than $1K and will prevent you from signing something you never intended to sign. You may also be able to negotiate some terms in your favor.
Get Feedback from Current Members
Prospective members should always do reference checks with existing members. Once you find your compatible groups, contact about 3 to 5 members of each group. Most websites have a listing of the members, but some don’t. If they don’t, then look up the group’s license on your state’s insurance department website. Most states have a listing of all the appointed producers under the group’s agency license. You can also do a Google search for these agencies, as many list their affiliations on their websites.
Appointments or Access?
Some groups have each agency appointed directly while others give access to the group’s appointment. Some may have a combination of direct appointments and access, depending on the carrier. A direct appointment shows the agency name on the declarations page, and access shows the group name on the declarations page. Ideally, direct appointments are better (jointly appointed to your agency and the group), but if direct appointments are an issue for you, this is one of the questions you should ask the group.
Beyond appointments or access, other groups include benefits like Agency Management Systems, E&O insurance, raters, in-house staff, training, and a number of other perks. Keep in mind that the groups that offer more charge more, so be sure to evaluate how much you want and need from the group. If you want the freedom to do more on your own, then find a group that limits their offerings to carrier appointments. If you want a turnkey solution, pay more and go with a group that offers more. While it may cost more for some groups because of their offerings and you may not get to choose the vendors, you would likely pay more to get those services and benefits separately on your own.
What Carriers Are Offered?
When researching a group, make sure to find out which carriers they are appointed with and which ones will appoint you directly (if that is an option with that group). It may be a good idea to include any carrier appointment in the contract that you currently depend on or will depend. Sometimes a group may have a carrier, but that carrier may not be willing to appoint new agencies. Get all this information upfront and in writing before joining.