Maybe you’ve just opened your own insurance agency and already realized you might need some help. Maybe you’ve been out on your own for a few years and business has stalled. Maybe you’ve got a friend in the industry who keeps telling you to merge in order to succeed, but you’re not ready to throw in the towel on your independence just yet. What do you do?
Join a network! Or a cluster! Or . . . do you join an alliance? Or maybe an aggregator? Which one is right for you? Are they all the same thing?
The short answer is yes . . . and no.
Groups of agents or agencies that band together in some way to improve their bottom lines could call themselves any of those terms – a network, a cluster, an alliance, or an aggregation – or even an association, or a partnership, or any other synonym for a cooperative arrangement.
But – and this is a big but – the details of those associations can vary widely, with no two exactly, precisely, the same. And the devil is in the details.
One network may require members to cede a portion of ownership to a parent organization, whereas many so-called networks have no such requirement. One cluster might expect members to give up their independent contracts, but another cluster might offer retention of those contracts in addition to the increased market access available. In addition to the improved carrier access, some cooperatives may offer an array of marketing and sales support, or document and money management, but others will be more bare bones.
In addition to the array of requirements of each network (cluster/alliance/aggregator), such as maximum loss ratios, minimum business volume, or geographic location, each will also have a wildly differing membership and compensation structures. There might be large upfront fees coupled with small static monthly charges, or there might be negligible entrance money required but a significant percentage of monthly revenue owed to the group. And keep in mind that just because you want to join a particular alliance does not guarantee they will accept you; many have strict entrance hurdles applicants must clear.
One newer arrangement which varies slightly from all of these is the franchise. A smaller agency might want to purchase an insurance franchise in order to reap the marketing benefits of a larger and more well-known company. The franchisee initially keeps their own independent contracts but transitions to an increasing amount of business funneled through the franchisor.
Yet another newer cooperative arrangement has emerged through electronic wholesale exchanges, where member agencies can access an array of available policies that would be otherwise inaccessible to them as solo operations.
The single most problematic aspect of any of these, whether they are called a network or an aggregator or anything else, is the contractual provision surrounding departure from the group. Anyone seeking to join a group should be very clear on the ramifications of leaving it. Who owns your pre-existing business? What about the business you developed while in the group, or even clients who might want to stay with you after you pull out? The number one complaint about these groups is the challenges and messiness that accompany dropping out.
The existence of coalitions amongst insurance agencies is not new – they’ve been around for nearly 40 years. That’s a lot of time for wrinkles to have been ironed out, but also for evolution from the earliest, simplest iterations of the concept. There is now a long list of things to consider when contemplating this type of business relationship. You should certainly consult with not only trusted members of the insurance industry, but also legal and financial experts. This is not the time to skimp on expertise and advice.
At the end of the day, it probably doesn’t matter if you are joining a network, a cluster, an alliance, or an aggregator, because of any of those terms could be used to describe any group of insurance agents working together. What does matter, though, are the details in the membership contract. If you are ready to hitch your agency to any cooperative arrangement, it is imperative that you understand: 1) your own wants, needs, and expectations; 2) the membership fees and compensation structure; and 3) how to leave. How do you get in, how do you get out, what do you get, and what do you give up? Joining an insurance cluster/network/alliance/aggregator might be the most important decision you ever make for your business.
At ASNOA, we are insurance professionals dedicated to helping other insurance professionals realize their full business potential and we want to help you meet your agency goals. Give us a call or send us an email today to see what we can do for you.