Small Independent Agencies Become ‘Instantly Big’ with SIAA
The region of the country that encompasses Arkansas, Kansas, Louisiana, Oklahoma and Texas was the last in the U.S. to be developed by the Strategic Independent Agents Alliance, a partnering organization dedicated to networking among its independent insurance agency members. However, the message to SIAA from its members in the area may very well be: better late than never.
Founded in 1983 by its Chairman Jim Masiello, SIIA consists of the national organization, regional master agencies and smaller, independent strategic agencies (ISAs). The network concept was developed as a way to expand Masiello’s New Hampshire-based retail agency without buying other agencies or hiring new producers.
After searching out “smaller agents that needed access to our markets and our expertise, we would strike a partnering deal with them,” Masiello said. “They would continue to be completely independent. We would give them company appointments and access to companies they needed so that they could grow their smaller agencies. That’s how it all started. Here we are 22 years later. … We [the SAN Group] just finished last year with 175 agencies that partner within that network and they write about $240 million in premium.”
SIAA is neither a cluster nor an aggregator, according to Masiello, who likes to say that when a small independent insurance agency joins a master agency that is part of SIAA, “they become instantly big.”
The organization began adding new regions of the country in 1995. It now represents “$3.5 billion in premium and 1,621 member agencies around the country and in Canada,” Masiello said.
Under SIAA’s model, the master agency is a larger regional agency that wants to grow but is hesitant to merge or hire more producers. “They have to be profitable,” Masiello said, “and they have to have a good selection of companies and they have to want to follow the SIAA model for creating, growing and managing the master agency.”
Typically, the ISA is a smaller agency, often in a rural market. They usually have “fewer than nine employees and they might do $150,000 to $200,000 of commission income and have a strong desire to grow but they’re held back. They can’t grow because they can’t get access to the companies,” Masiello said.
South by Southwest
SIAA has been involved in the Southwest region of the country for about five years, according to regional President Bill Wilkinson. Wilkinson said he seeks out the larger regional agencies that will become master agencies and contract for an exclusive territory in which they recruit ISAs. With access to top standard markets SIAA negotiates profit sharing arrangements with the insurers on a national level, which are available to the master agencies. “They pass that on down to the little guy … that is not only worried about having enough companies to represent, but he’s never going to get profit sharing,” Wilkinson said.
The companies have raised the premium volume bar and can’t afford to service smaller agencies, he said. “We say, ‘You don’t have to do that. We’ll do that. Through the master agencies we’ll communicate with these smaller agencies. … We’ll be your marketing arm.'”
Wilkinson said SIAA has strict guidelines for recruiting both master agencies and ISAs. “For the master agency we look at the loss ratio for the prior three years,” he said. “I’ll talk to the company personnel and make sure the relationship that they have with a particular agency is good. And this filters down to the ISA too. We’re not going to jeopardize our profit sharing by signing up somebody that’s … questionable.”
With five master agencies, SIAA Southwest ended last year with $118 million in premium volume, $23 million more than the previous year, Wilkinson said. The organization added one master agency in Texas in 2005, giving it four in Texas, one in Oklahoma and one in Louisiana. Wilkinson said he’s negotiating with two potential master agencies in Kansas and researching one in Arkansas.
Saving the small agency
“SIAA is going to be the survival of the small independent insurance agent,” said Neville Cuave, owner of the sole SIAA master agency in Louisiana, Southern Insurance Group of Louisiana. “The small retail agents out there that we serve and help have no markets here in Louisiana because the companies require so much large volume.”
Southern Insurance Group owns the territorial rights to the northern 29 parishes in Louisiana. Cuave said since his retail agency, Cuave Insurance, partnered with SIAA to form the master agency, it has experienced significant growth. He added it is sometimes difficult for agents to believe the benefits SIAA provides and that, “it takes a while for them to understand how it operates, because it’s such a great thing they can hardly believe it’s possible.”
Cuave confirmed that through SIAA smaller agencies have access to markets “they never had, and once they join an SIAA organization like the Southern Insurance Group they’re as big as any agent in the state as far as being able to write anything.”
Southern Insurance Group’s goal is to sign up about 45 agencies in northern Louisiana. “Once we reach that goal we’ll pretty much have the area covered,” Cuave said. Noting that there are still many agents in Louisiana that could benefit from SIAA, he said every time an ISA joins the organization “it helps all of us” by increasing the premium volume, which stimulates larger bonuses from the companies.
Ken Anderson explained that his master agency, Oklahoma Agents Alliance, owns the territorial rights for the entire state and is a partnership between his retail agency, Oklahoma Business Insurors, and SIAA. Anderson, who’s based in Oklahoma City, said his retail agency looked at several options when it decided it was time to grow.
“We wanted to create one of, if not the largest insurance agency organization in Oklahoma,” Anderson said. “And we decided the SIAA model was the way to do it.”
Anderson commented that Oklahoma Agents Alliance not only creates new business by “providing [agents] insurance markets. We can provide them mentoring and advice as far as their needs for automation. We’ve negotiated with some automation vendors for tremendous discounts that we can pass on to our partners at Oklahoma Agents Alliance.”
He said one of the big growth incentives is the profit sharing program. Oklahoma Agents Alliance encourages members to produce profitable business “for our insurance carriers, and we let them come in at a fraction of what an insurance carrier would require of them to qualify on their own.” He said a lot of the agents he brings in are just starting out or are rural agents.
Established in late 2000 Oklahoma Agents Alliance got off the ground in the first quarter of 2001. Anderson said it now has 27 members and has grown to be “one of the top 10 master agencies across the country.”
Ronny Bryant of Abilene, Texas, said his retail agency, Perry Hunter Hall Inc., signed a contract with SIAA establishing Texas Agency Alliance in May 2001 after researching clusters and considering buying some smaller agencies. Bryant said his experience with SIAA has been “a good deal for both our retail agency as well as the members that have signed up with us. The main thing is, we’re providing a network for the smaller agencies out in our geographic territory, which enables them to compete with just about any agency in the area.”
Texas Agency Alliance was the first master agency to sign a contract with SIAA in Texas, so it has a few ISA members outside of the west Texas region. Bryant explained that because of their size, smaller agencies are sometimes forced to go through excess and surplus markets when their account may actually qualify for standard business. Like Anderson and Cuave, he noted that access to good insurance markets through SIAA membership allows small agencies to write new business and to grow.
Texas Agency Alliance takes care to monitor the business submitted by ISAs. “It’s got to be profitable business,” he said, “because we’re kind of all in the same boat–meaning as they write and grow all the business is aggregated toward profitability with our insurance companies. And ultimately we get excess compensation either through growth bonuses or contingency profit sharing. It’s our job as a master agency to make sure that we’re getting good business coming in from our members.”
Why not participate?
Wilkinson said agencies that sign up with SIAA commit to a 15-year contract and payment of an initiation fee, both of which can turn some people off. But, he added, if the organization is not a good fit it is possible to get out. We tell agents “if it’s not working for you, it’s not going to be working for the master agency, and it’s not going to be working for me as a regional president or anybody else.”
He said there are “various reasons people don’t want to put the money up front, [but] we have found … if they don’t have a little skin in the game there’s going to be adverse selection.”