Strategic Resources for Your Insurance Agency

An Overview of Agency Clusters, Alliances, or Networks


By Joseph Totah

There are all kinds of agency networks across the U.S. and worldwide. Many of these groups refer to themselves as "clusters," but there are also franchises, alliances, and other types of networks. Regardless of what they call themselves, they are basically master agencies; that is, a group of retail agencies under one master agency code. Most carriers now recognize these organizations, further giving sub-codes to their member agencies. More often than not, a sub-code shows the member agency name, not the master agency name. For the few carriers that don't sub-code, it will show the master agency name, though this recently has not been the norm.

Most of these organizations are open to admitting new members, though some may be restricted to the existing agency members. Many welcome start-up agencies, while others have minimum requirements to join and require only established agencies with a minimum premium volume. Nearly all of these groups have an initiation fee, often several thousand or more, to join. Monthly fees can vary, from a percentage of commissions to a fixed monthly fee, or a combination of these. Typically, a prospective member completes an application process that is then reviewed by the decision makers of the organization. You may need to submit a business plan or an agency profile report along with the application. You may also need to provide loss ratios; the last thing these groups want is an agency with loss ratio problems. If you have had some great loss ratios as a captive agency, I would include this information, as it can only help your case and demonstrate that you are a good underwriter.

A cluster is a very good idea, if not essential for the small to mid-size agency in the current marketplace. In most cases, a cluster will provide you with all the carriers you need. It will negotiate with these carriers and you share in the profits. Speaking of profit-sharing, it's very difficult for a smaller agency to meet minimum requirements to achieve it. Master agencies allow this to be possible by pooling their volumes. Most of these organizations do claim a certain percentage of the profit-sharing and often return a higher percentage of the share back to their members, based on a certain formula.

How do you choose which is the best organization for you? The first step is to visit the websites of those operating in the state you are in. You can find a list of these organizations and the states they operate under the Insurance Agency Clusters, Alliance & Network Listings on this site.

There are no two organizations alike, while they mostly provide markets, they may differ in a number of ways. Profit sharing agreements and contracts vary from group to group. Some groups may include things like E&O Insurance and an Agency Management System, others may just provide markets and profit sharing. You want should review the carrier appoints of any group you research and determine if those carriers are going to meet the markets you are looking to target. One size does not fit all, you will have a choice of what depending on your needs and start up capital.

Review each entire website and learn as much as you can about each group. Find out what their requirements and if you can meet them. Find out what carriers they represent and compare you with these groups. Ask yourself which carrier mix will be better for your agency. Find out if they are accepting new agencies.

Once you find a compatible group, contact about 3 to 5 members. Most websites have a listing of the members, but some don't. If they don't, then look up their license on the state's website. Most states have a listing of all their appointed producers; in a master organization, you should find them listed under "producers." You can also do a Google search as many agencies list their affiliations on their website.

Once you are able to locate the members, I would talk to the principals of at least 3 different agencies within each organization, if not more. I would not recommend talking to the agencies that are recommended by any of these organizations, as you may get biased feedback. In addition to talking to existing members, you may also want to:

·  Check out the licensing page on the states they do business in. You can find out with whom they are appointed with and any other information that may be helpful to you. In most states, you can also see a list of license appointees.

·  Do a Google search and find out what is written about the organization online. You may find articles in insurance publications, information on an insurance forum, or be able to locate an agency member's website.

·  Talk to carrier representatives. They often know of the groups in your area and can make recommendations to you

No single item mentioned above should determine which group you choose. Please use a combination of the research methods. If you do a Google search and find some negative commentary about an organization, remember that anyone can post what they want online. It's always best to verify the accuracy of what you read online with more than one source. Finally, no one size fits all. What may be good for you may not be good for another agency. Each group is different, and that is what is great about the marketplace. Different needs are filled with different options.

Explore Agency Equity


Stay up to date with AgencyEquity

absolute absolute.gif absolute