To the outside observer, it might appear that an established independent insurance agency would not need an agency network. After all, it has several years’ experience under its belt, a significant book of business, and reliable markets. However, many established agencies are finding that joining a network can make a dramatic difference in their growth and ability to serve their clients.
DiNicola Insurance Services, a San Francisco agency, had been in business for ten years before joining its network. They were accessing most of their carriers through wholesale brokers, explains agency principal Nick DiNicola, and they wanted to expand their available markets. However, getting more carrier partners is one thing; making them all happy is another. It can be hard to “keep all the mouths to feed,” says Patricia Kinter of Kinter-Buchanan Insurance Agency in Redondo Beach, California.
Network members usually have lower volume commitments to meet with carriers, making it easier to meet their goals. “We had access to a good amount of the preferred markets, but we were always on the line with meeting the volume commitments,” admits John Bradford of Sacramento-based McGee & Thielen Insurance Brokers. “The network allowed us to move into a more favorable position and to gain back markets whose commitments we would not have been able to maintain without the better negotiations of the network.”
Agencies often see their revenues increase in the first year or so after joining a network, largely due to improved profit-sharing arrangements. Tom Atwood of Vallejo Insurance Associates in Vallejo, California said that loss problems hurt his agency’s profit-sharing revenues, despite producing $5 million in written premium. “Joining the network evened out our profit-sharing,” he says, because the effects of a single shock loss are cushioned by the premium all the members of the network bring in the door. Kinter echoed that, saying that the extra support “makes me sleep better.”
DiNicola noted that, along with extra markets and improved profit-sharing, members may get better commission rates. In some cases, his agency’s commission rates increased from 10 to 15%. Bradford also saw first year revenues increase in part because of increased commissions. The new markets enabled him to move business from the surplus lines market, where he had to share commissions with other brokers, to new preferred markets.
Not only do the additional markets give agencies more options; they can save accounts an agency might have lost. Atwood is positive he would have lost business on high-end homes (valued between $1 and $4 million) without the extra markets. Replacement costs are rising in California due to housing inflation and the increased demand for construction materials and labor resulting from the state’s recent plague of wildfires. As a result, homes in this value range are not that unusual, and he would have been unable to write them without the network’s carriers.
While the network helped some agencies increase staffs, others used productivity gains to run leaner. Atwood’s staff shrank from 17 in 2008 to 10 in 2019 while producing 10% more business. DiNicola and Bradford, on the other hand, hired more people. Others, like Kinter, focused on broadening their product offerings.
One important benefit is having other network members, as well as the network’s management, to approach with questions. Atwood says he has learned about agency management systems, the right equipment to purchase, and best practices from the other agency owners. Kinter calls it a “family of agents” and views them more as partners than as competitors. Bradford agrees. “We also enjoy the fellowship of other agency principles that we network with at events sponsored by the network.”
Joining a network was “the best thing I ever did,” says Kinter. DiNicola says he wishes he had done it years earlier. Atwood says, “It’s the best decision we’ve made since 2007 or 2008.”
Joining a network should not be done without plenty of thought and exploration of alternatives. Atwood advises agencies to learn what a network offers, how to join and leave it, and what the value is. Bradford, however, sums up the benefits. “It has made us better business operators by allowing us to work on the business,” he says, “and not work in the business to meet volume numbers.”
