By Catherine Oak and Bill Schoeffler
Regardless of agency size, sometimes it is difficult to get access to all the markets that might be needed for the agency’s clients. Most standard markets will have some sort of volume requirement and some might limit the number of appointments in a region.
So, what are the options if the agency or producer really needs to place a piece of business with a specific market, but doesn’t have direct access to it?
There are several ways that this dilemma can be resolved. If lacking a specific market is an infrequent situation, then the simplest approach is to either broker the business through another agency that has that specific market or find a managing general agency (MGA) or wholesaler that has an appointment.
Using an MGA or wholesaler is fairly straightforward. The commissions paid will typically be about one-half to one-third less than what one would get paid with a direct appointment. The range is based on the contract that the MGA/wholesaler has with the market.
When a piece of business is brokered through another agency, the commission split is based on what the two agents negotiate. A 50/50 split is common, but sometimes the brokering agency only charges a nominal 10% or 20% to place the business as an accommodation.
When an agency regularly needs to have access to one or more markets on a regular basis there are other options to consider. These options provide different levels of commitment and benefits.
For agencies that prefer to remain independent and have minimal commitments, then using an aggregator is a great option. Although there is no formal definition of the term, the way we define an aggregator is that they are a type wholesale agency that is regional and has access to a limited number of standard markets. For example, a carrier might have a couple of hundred agencies appointed in an area with very low volume. An aggregator could step in to consolidate all that business under one appointment, streamlining the work required by the carrier.
Typically, an aggregator will have a monthly membership fee and offer about two-thirds of the standard commission rates. For agencies that have a fair amount of business but don’t have enough to get a direct appointment, an aggregator could be a better option than a regular wholesaler because the commission rates would be higher on average. Examples of aggregators are WIAA Insurance Services and Networked Insurance Agents.
Clusters/Networks or Franchises
For agencies that would like to have regular access to a wide variety of markets, get higher commissions, earn contingent/bonus income and perhaps have other support, then it might make sense to join a cluster/network or franchise.
Networks/clusters are a group of independent agencies that band together to share resources. There are so many benefits of being in a network/cluster. The most important is to have more market clout, which takes the pressure off the individual members to meet volume commitments. In addition, it is easier to receive larger contingencies.
There is also the ability to have cost savings because of sharing people and functions. A wonderful aspect is also the ability for the members to lean on each other and be each other’s board members. Since there is power in being larger, the cluster also gives the members a bigger presence in the marketplace. Networks/clusters can range from very large national groups to a handful of agents in a rural section of one state.
Membership fees and how commissions and contingents are split will vary based on the network/cluster. Usually, members remain fairly independent and have full control over their accounts. This can be an excellent solution for the agency that wants assistance and power, yet autonomy.
Examples on the West Coast are United Valley and Pacific Interstate Insurance Brokers. Examples that exist on the East Coast and elsewhere are Iroquois Group, Renaissance Alliance, Combined Agents of America and Insuror’s Group (Texas).
Franchises can be considered a variation of a network/cluster, except there will be standard branding and the intent to have similar operations. Franchises tend to have a sizable fee to join and a monthly royalty fee or split of commissions.
Make sure the terms of leaving the franchise or selling the business are understood before entering into an agreement. ISU, Goosehead and Brightway are examples of franchises to look at.
What to Consider
When evaluating the options available, the key things to consider include: who has account ownership, what are the commissions paid, what are the costs to gain access, what is the future commitment to keep the access, what is required to separate the affiliation, will this help grow the business, what are the errors and omissions (E&O) implications, and will this be in the best interest of the client.
The good news is that today it is easier than ever to access needed markets and the options are broad. The playing field is reasonably level for small to medium sized agencies to compete with large firms on markets.
Agents just need to find the option that provides the best overall value to their firm and their clients.