Agency Partnerships: Then and Now

The first agency networks and partnership groups began in the 1970s, mostly to combine books of premium to access markets at a larger scale. Today, the reasons agencies join forces have moved far beyond combined premium, according to some of today’s largest networks. Agency partnerships have evolved into diverse organizations delivering a wide array of products, services, and relationships that agencies need to thrive and survive in the current hard market climate.

The past two years have seen substantial change in the agency network and partnership space, according to Matt Masiello, CEO of SIAA, a national alliance of independent insurance agency members founded in 1995. SIAA added more than 700 new member agencies in 2022.

“What agencies expected from networks years ago is much different than what they either expect, or need now and in the future,” Masiello told Insurance Journal. He says that agency networks and partnerships that have been able to modernize their business model, capitalize, and reinvest in their business to provide sustainable services to their member agencies are those that will survive. Simply aggregating books of business in an effort to gain additional compensation from carriers is a model that will not work going forward, Masiello says.

Steve Pearson, president of ISU Insurance Agency Network, agrees that the agency groups that formed solely to access markets with more clout by combining their individual books of business are feeling the heat in today’s challenging times.

“Carriers are looking to lower their combined ratio, and lower their cost of doing business,” Pearson said. One of the things they’re examining today is how they partner with agency networks, he said. “Not so much the legacy networks, the people that are in the top 20 networks list, but at other organizations that just created a master code to put their business underneath,” he said.

“From a carrier perspective, as they examine how to reduce cost, they are asking, ‘Why are we paying you more as a group than we would pay you as individuals?’ If the answer is, ‘for no reason,’ then I think those models are under threat,” according to Pearson.

He says this pressure from carrier partners will lead to more consolidation in the agency network space for those groups unable to provide additional resources and services that independent agencies need and want today.

[Editor’s Note: ISU Network chose not to submit data to this year’s Insurance Journal Top 20 Agency Partnership ranking which is derived from voluntary submissions from agency partnerships and groups.]

Agencies need professional services from agency partnership groups and even insurance carriers expect that from these groups, Masiello said. “That’s been a big differentiating factor for us … acknowledging that agencies need help with technology and improving how their business is run and EBITDA or margin improvement or even things like staffing,” Masiello said. “Sometimes, they just need somebody to talk to that’s a kindred spirit and is willing to listen to them.”

Agency partnerships continue to play an important role in property/casualty insurance as carriers are re-evaluating where they want to write business, what kinds of business they are willing to write, and with whom they want to partner.

Being a good partner means finding ways that work for all parties, even in tough markets, notes A.J. Lovitt, CEO of Combined Agents of America.

“To be a good network for our members and to be a good partner for our carriers,” networks have to find ways to “give our members the resources they need to be the types of agencies that carriers want to do business with,” Lovitt said. “When the carriers’ returns were good and profitability was better, networks had more leverage with carriers because networks could provide access to new business in a big bulk,” he said. “Right now, the value proposition that networks offer has changed. “It’s really all about profitability and how you can help the carriers become more profitable.”

With the current challenges facing the property/casualty industry, agency networks know that enhanced (profit sharing) compensation is not going to be the same as it was because the carriers aren’t making money, Lovitt says.

Instead, now is the time for networks to work on other needed services for their members, he says. “We’re spending a lot of time right now, for example, on things like producer development, perpetuation planning, mergers and acquisitions, and other opportunities to help our members become better.”

Today’s agency partnerships must demonstrate their value to members and their carrier partners to stay relevant in the days ahead, says Keith Captain, president of FirstChoice, a MarshBerry Company. Agencies today want to know what the network or group will do to help them advance and enhance their overall agency and make it a better agency, he said.

“Agencies are evaluating and asking some additional questions … ‘What’s the contract look like? What is it that I’m going to get? What services do you have? What data do you have? What education do you have? What technology support do you have?’ The list goes on,” Captain said. “You’re having more people ask those questions than in the past.”

Captain also expects to see more consolidation among agency networks.

“Agents want to separate themselves from the ‘old school’ networks – what I call commission clubs – where everybody just holds hands together and goes to carriers to ask for more money,” Captain said. “Those (networks) are getting few and far between and are feeling stress and pressure from carriers because the results aren’t as good as they once were.”

Agencies, and carriers, want to know what a network’s true value proposition is in the agency-network-carrier relationship, Captain added.

The value proposition has a great deal to do with the relationship, too, said Jessica J. Hendricks, vice president, agency development, at EMC Insurance Companies, adding that some of EMC’s largest agency relationships in aggregate are in the network space.

But she understands that networks are different in size, scope and what they can provide their members and carrier partners.

“They’re all very different but what EMC looks for with our partnerships is alignment with our relationship-based model,” she said. “We have our branch footprint countrywide, and so we really look to partner with networks and agencies that also value that local relationship and decision making.” It’s at the local relationship level where conversations between a producer and account manager and a local underwriter or territory manager happen. That’s where partnerships grow together so they can be successful, she added.

Relationships matter even at the network level, Hendricks said. “We really want to have those partnerships that value the relationship first.”

Hendricks adds that agency networks driven solely by market access or aggregation of contingencies are not groups that EMC would want to partner with.

“Those are the ones that we don’t partner with as much, or put as much effort in,” she said. “We’re not looking for business just to keep coming in the door from all over. We want to really hone-in on where we want to write business and who we want to write it with.”

Hard Market

The hard insurance market is a critical driver of change within the agency network space, according to Hendricks.

“Simply stated, the market is so challenging and disruptive right now that all relationships are impacted,” Hendricks admits. “I wouldn’t say it’s necessarily all negative by any means, but carriers (all the way) through the reinsurance space are pressured,” she said. “We are really having to take a look at our books of business.”

Hendrick says carriers are not evaluating their book from a network perspective as a whole. “But we’re having to have those difficult conversations on the pieces of business or the lines of business that are causing us profitability issues,” she said. “We are working with that agency partner to say, ‘Hey, what can we do? Do we have to write this? Can we find another market? Are there ways to make an account more appealing with pricing or with loss control?'” Everyone’s having to get more creative because of current market conditions, she added.

For some agencies, especially California-based agencies, current insurance market conditions have been extremely challenging and networks are doing what they can to offer assistance, says Tiffany Bertolini, president of Pacific Interstate Insurance Brokers (PIIB).

“I was talking to an agency last week who started shop during the pandemic and now is seeing these challenges. … He described PIIB as his lifeline. … We don’t have solutions and markets in California, but we try to just support them as much as possible right now,” she said. “Our team is having phone calls with members and saying, ‘Let’s try to help you get through the next few years because carriers [in California] don’t want new business right now.'”

Aside from the challenges in the California market, PIIB members need to find qualified talent to fill roles, Bertolini said. “That’s one of the number one needs of our agency base.”

The rapid pace of technology advancement is also a hurdle for some agencies, she added. “I feel like we’ve talked about that for so long, but it continues to change so drastically and now with all of the AI availability out there, agencies really need help navigating decisions on what technology is best for them.”

Bertolini says the future of networks will be one that demands more supportive services for its membership.

“We’re going to see a shift,” she said. “Our style has always been very hands off. … We get you set up with your markets and you have the protection of the group and then run your agency the way you see fit,” she said. That style will still exist, but in a future where networks must deliver more resources and services for member agencies. “And at the end of the day, that network, agency and carrier, what we want is profit,” she said. And networks must focus their efforts on how to get there.

Preeminent Roles

Renaissance’s Robert Bondi, CEO, is happy to see the changes happening in the agency network space today. “I think it really illustrates that networks are becoming a preeminent structure in the independent agency distribution channel.”

The added capital entering the agency network space is helping, too, he said. “It’s more than just this collection of agencies pulling together; it’s actually a real important piece of the business.”

Renaissance itself received a capital investment in 2018 by Long Arc Capital that enabled the organization to expand services and geographic reach by acquiring additional members and two other networks: Agency Network Exchange and United Valley Insurance Services.

Bondi, too, sees a future agency network world where additional consolidation takes place. “I think the consolidation [in the agency network space] and the strategic combining of certain groups really is kind of evidence that networks are maturing into the next phase of what they’re trying to do,” he said.

Like others, Bondi agrees that the most difficult challenge agency partnerships will face in the immediate future is the hard market. A successful future in these times will depend on what kinds of services and resources networks are able to offer, he said. “It’s really about delivering value to members and the more value you can deliver and demonstrate to them the stronger network you can become,” he said. “So, the networks who can help agency members stay profitable and deliver profitable results to carriers will be better insulated from these market conditions.”

Bondi also believes that how carriers differentiate and compensate networks going forward will be key to their survival. “The ones that are really delivering value will survive, and those that aren’t, will continue to struggle,” he said. “Understanding the strength of those carrier partnerships is really an important dimension that you need to consider. I think it is more important today than ever before.”

“It’s really how can we proactively direct business to certain carriers where the appetite is appropriate,” he said. “When a carrier works with a network who can help them see that view, that means a lot to them. It means knowing where the next incremental value lies.”

Much like prospecting in an oil field, he said. Networks should be able to prospect and find the next big opportunity for both their members and their carrier partners, he added.

Meredith Rominger, chief operating officer at SecureRisk, an agency network owned by nearly 100 exclusive independent insurance agencies, says carriers, agencies and their agency networks are partners – through changing economic and market conditions.

“We grew these books by hundreds of millions of dollars over the last 10, 15, 20 years as a partner,” Rominger said. “We did that together. We all are in it together, whether it’s going well or not.” That’s an important message in today’s challenging property/casualty market, she said.

“There’s definitely a lot more pressure out there,” added Brian Bandrowsky, CEO at SecureRisk. “Right now, the marketplace is bad, particularly where we are primarily located (Georgia). But at the end of the day, this works if we’re a partner with the carrier and they’re a partner with us.”

Bandrowsky says when carriers truly partner with agency groups and work to make the best agreements with their agency networks, they end up getting the best business and the best results. “We have more influence, and they have more influence on those agencies to get better business and be more profitable.” He stressed it’s not always about the money/profit sharing, either. “There are other ways to make a network, a group agreement, work,” he said. “But our agreement has got to have the better rewards to get the better results.”

Better rewards mean different things to different agency members. It’s the job of the agency network to understand what value rewards have to their members. For example, Bandrowsky says SecureRisk has an agreement with a premium finance firm that offers members either some additional compensation, or a reduced rate. “In some cases, we’ll subsidize some of the tools – that’s value to the agency, but also value to the carrier, too.”

Agencies need to know what their agency networks can bring to the table. “It’s a matter of what other resources can be offered. It’s not just the aggregation for better profit sharing. It’s not just market access. It’s more about vendors, value added services, resources, and having a quality support staff to provide marketing, accounting, etc. Anywhere we can look at centralizing services to make things more efficient,” according to Bandrowsky.