Agency Groups Give Independent Insurance Agents ‘Big Agency’ Edge

Some believe the independent insurance agent may soon be on the endangered species list.

Tighter margins and pressure from insurance carriers to meet increasingly higher production demands are putting the squeeze on every agency. Since 2000, the number of agents with less than $500,000 in revenue shrunk dramatically. Industry consultant MarshBerry projects the number of agencies with annual revenue under $2.5 million will decrease by 15 percent in the next five years. Meanwhile, the number of larger, “mega” agencies will continue to grow, demanding even more attention from insurance carriers.

Despite the growing number of “mega” agencies, there is still room for small to mid-sized, independent firms to survive and even thrive. Many are joining agency groups such as aggregators, clusters, alliances or networks designed to help them compete in the current and future environment.

This isn’t a fad. There are hundreds of agency groups around the country, many of which have been in business for 30 to 40 years. National and super regionals, as well as local mutuals, have been working with agency groups for decades. Smart agents who want to remain independent, grow and build their business have found that joining a group is a sound business move that gives them the scale and services to help them accomplish their goals.

So what is the best type of agency group? Each business model offers something different for the agent.

Aggregators focus on premium aggregation to increase contingent revenue.

Clusters are traditionally small groups of agents that work together to share markets, and even technology, to build efficiency through scale.

Alliances or networks offer broader value to agents beyond premium aggregation and market access, such as exclusive products, training and technology assistance.

Size Matters

No matter which model, the biggest advantage to joining a group for any agent is scale. Agents continue to tell me their greatest challenge is meeting carrier demands for production. Carriers are constantly raising the commitments required for profit sharing. Traditionally, if an agent wanted access to a new market from a carrier, they would have to make a substantial commitment — maybe a million dollars of new business in 18 months. For any agent, that’s not realistic. Agency groups give agents direct access to write and work with carriers as if they were fully appointed, but with more reasonable production commitments. Agencies of every size are joining agency groups as part of their business management strategy.

Access to New Markets

In addition to connecting agencies with national and regional insurance carriers, some agency networks also give agents access to exclusive products and unique markets. For example, one network developed a general liability excess and surplus line product that’s available in all 50 states. Another agency group developed a homeowners insurance product at the request of one of its agencies. Now its agents have access to a product that returns 15 percent commission compared to the 10 percent that a wholesaler or broker would pay.

Find a Niche

The days of the generalist are over. For agents to really grow, they should focus on a niche. Agency groups provide training to help agents focus on a business area, become experts in that specific niche, and then make sure the agents have the right products for their clients. It’s the quickest and easiest way for an agency to build a book of business because they can approach a particular group of prospects with information about the industry and the risk management issues they may face. Focusing on a niche gives the agent credibility.

Focus on Selling

Agencies that focus on selling rather than servicing will enjoy greater success. The average producer spends only 41 percent of their time on sales. By providing access to markets, advanced technology support, sales training and mentoring, agency groups free agents to build their books and take their business to the next level. The agency group manages the relationship with the carrier, including production planning, so the agents can spend more time focused developing and getting new business.

The Bottom Line

No two agencies are exactly the same. A cookie-cutter approach won’t work. The business model that works best for a particular agent depends on the agent’s structure and operation. What are their goals? Will joining a group help them achieve those goals? If the only reason an agency joins a group is for premium aggregation, they will earn more contingency business in the short-term, but in a few years, they will be right back where they started.

Agents should consider joining the group that can do more for them over time. The ideal group will help them navigate the business climate, and provide access to more markets, sales training, better technology and other services that are only available because they are part of the larger group. Agents who join groups will benefit from being part of a larger corporate entity, while maintaining their independence as a business owner in the community.

The challenges that agents face aren’t going to magically disappear. Technology, customer demands and the drive for efficiency at the carrier level is going to force agencies to change or not survive.