Overwhelmed with everything you need to do as an insurance agency principal? Not able to secure markets or meet profit sharing minimums? You are not alone. Other agency heads before you have experienced all the same frustrations as you – and many of them have done something about it: Joined or formed an agency network.
In the insurance industry, an agency network group (also known as alliances, clusters and aggregators) is a formal association of insurance agencies formed for mutual support. For example, an insurance network group may form to provide economies of scale to assist in negotiating with carriers and pricing discounts from vendors. Some groups may include these services as part of their membership structure.
For example, a network group may have negotiated arrangements and offer any of the following:
- Appointments or Access to many Carriers
- Contingent Commissions (Including profit sharing and group volume bonuses)
- Errors and omissions insurance coverage
- Agency management software
- Quoting or Market Placement Services
- Special Group Training with Carriers
- A number of other negotiated benefits
Because each network group is free to enter into its own arrangements with carriers and vendors, each network group can be very different from the others. As always, the devil is in the details.
Benefits
Access
Individual agencies may have trouble getting appointments to the best, most desirable insurance carriers or products on their own. But an individual agency that wouldn’t be worth a second look to some carriers may gain access to these products as part of a group. As an individual agency, you may not even be on some carriers’ radar screen. However, securing membership with an established network group or master agency network, a carrier access or an appointment is often part of the package.
Commissions
Just as network groups are able to help small agencies gain access to the top insurance carriers, they can also negotiate more lucrative commission arrangements, as well. Naturally, the commission structure is different with each market, carrier and line. But affiliation with a good network can help you get access to the best commission and renewal arrangements that the carriers normally reserve for their largest and most favored agencies.
This helps you maximize your agency override, while at the same time allowing you to pay your agents more, helping you retain your highest producers.
Profit sharing
Most groups have a profit sharing program that can be lucrative for the individual agency because the production is based upon the group, rather than the any one agency. For many agencies, this more than offsets the fees or small commission percentages that the network group charges. Also many groups negotiate higher new business commissions, such as a 5% above and beyond a standard 15% commission, often bringing the total new business commissions to 20% or more. In addition to the number of carrier appointments, profit sharing is a huge reason on why many agencies join these groups.
Operations
Some insurance networks can provide help with back office procedures. Some agents have successfully used network groups to enable them to run solo practices out of their homes. More and more networks are now offering staffing services.
Considerations
Before you get too deep in the process, review the qualifications guidelines for the network group you are considering. Some groups will not work with brand new agencies, or agencies that do below a given level of volume. However, some groups only focus on recruiting new agencies. One size does not fit all, each agency needs to find a network that best meets their needs and fits their qualifications.
Also take a hard look at the “divorce” clauses. If you elect to leave the network group for any reason, you may be subject to termination clauses. Some groups have termination fees when you leave, some may have non-compete clauses. Nevertheless, it’s best to read the contract and understand the terms. Even with these termination clauses, these groups provide significant advantages and should be taken into consideration when evaluating an agreement. If the advantages outweigh the disadvantages, membership may make sense for your agency.
Also, compare the upfront fees, if any, and the ongoing monthly or annual membership fees. Can you keep up the required payments, even when you have a couple of slow months?
Does your network allow you to bind the policies you write? Some networks can grant the agent binding authority, some don’t. Binding authority allows you to lock in coverage as of the date the client hands you that first premium check.
The bottom line
There’s no single right or wrong answer to what network group might work best for you. The answer depends on a variety of factors, including your location, existing book of business, volume, existing market and many other factors. Not every network accepts every agency – some networks are regional, others national in scope.
