Factors Critical to a Network's Success
Some of the factors or characteristics of successful agency networks include:
· A well thought-out organizational structure and a formal operating agreement that are prepared by a qualified attorney. Preferably, the attorney should be familiar with the operations of an insurance agency, as well as agency network issues. Some of the provisions to be included are:
· Membership requirements / qualifications
· Management structure / decision making process
· Financial commitments of members
· Mutual covenants
· Termination / withdrawal provisions
· Agreed upon rights and responsibilities regarding income / expenses / bonuses
· Reliable accounting / data management of the network's records
· Consistent and professional communication among members regarding opportunities / problems
· Mutual respect, compatibility, and compliance among members
Due Diligence in Selecting a Network
One of the first steps in determining if joining an agency network is right for your agency is to develop a list of the reasons you are considering doing so, as well as the benefits you expect to receive, both now and for the long term. It is also important to focus on the managerial and administrative functions you do not wish to surrender. You should obtain information regarding:
· Current member agencies, including branch locations
· Premium volume and loss ratio information
· Insurance providers represented
· Profile of the book of business (e.g., is it concentrated in any industry; does it focus on commercial or personal, etc?)
· Copy of the operating agreement
· Your agency's representation on the network's board of directors
· Decision-making process
· Compensation and expense sharing system
Essential Provisions of a Network Operating Agreement
The following is a list of some key issues that should be addressed in the operating agreement among the members of an agency network:
· Duties and responsibilities:
· Individual member agencies, responsibilities regarding servicing, billing, and collecting and paying account currents, etc.
· Establishment of procedures relative to the handling of profit sharing and contingency bonuses, including the formula to be used in computing distributions.
· Adherence to all company agreements held by the operating entity
· Timely payment of insurance company balances
· Maintenance of minimum E&O coverage limits, and naming the operating entity as an additional insured
· Observation of all operating rules and procedures
· Termination provisions:
· Termination for breach of operating agreement
· Right to withdrawal with appropriate notice
· Notice period in the event of termination /withdrawal
· Mutual covenants:
· Confidentiality of individual members' information, both during the term and after termination
· Non-solicitation/non-piracy among members, both during the term and for at least 24 months thereafter
· Non-solicitation/hiring of another member's employees
· Restriction of member agencies "brokering" with (or for) non-members agencies
· Restriction of member agencies joining any other agency network
· Transfer of member agency ownership:
· Prior notification to the network if a change in an agency's ownership or management control is anticipated
· Approval process for continuing as a member if ownership or management control of an agency changes
