Comparing the Pros and Cons of joining an Insurance Agency Cluster

The rise of insurance technology and growing competition in the insurance industry has made it tough for independent agents as they manage all of their agency’s moving parts on their own. Some agents even have difficulties keeping their business profitable while they take care of everything. If you are an independent agent, you might have considered joining an Insurance Agency Cluster (IAC), so what exactly are they?

IAC is a coalition of multiple agents and brokers who have banded together to form an official association or a joint venture to support each other in terms of carrier access, benefits, and marketing opportunities. They are also known as Agency Network,  Agency Group, or Agency Alliance. Agency Equity has a comprehensive list of IAC operating in each city.

Advantages and disadvantages of joining an Insurance Agency Cluster

Comparing the pros and cons of joining an insurance agency cluster

Source: blueocean.ca

In simple terms, it is a working alliance; the individual independent agents gather together and share their resources to form a larger block of a business, i.e. cluster so that they can mutually benefit each other. But depending on the needs and desires of member agents, there is a whole spectrum of insurance agency cluster: the one end of it is very participatory and even shares office space, while the other end works remotely from each other.

IAC’s have a few primary objectives:

  • Profit sharing: As the consolidation of different agents leads to increased volume, independent agents aim to increase profit sharing by working in the relevant target market the cluster has the maximum strength in.
  • Better optimization: With agency clusters, the independent agents in the cluster seek to utilize the capital optimally and bear the overhead expense while improving productivity with the use of technology as a unit.
  • Developing opportunities: The insurance agency cluster is all about producing new opportunities for a future buyout in case any agents aims to sell. Furthermore, it also aims to utilize the resources to develop opportunities in the new profitable market that would not have been possible working independently.

Advantages of joining an Insurance Agency Cluster

Independence

Joining an insurance cluster is not like a merger or acquisition. You remain an independent agency, but you continue to operate under your current company name and appointments. You are able to receive commissions directly from your carriers and you (in most cases) maintain your current marketing and contacts.

Access to multiple-carriers

When you join a cluster, you have access to many desirable carriers with whom the cluster has established relations through collective bargaining. This is often a fight for smaller organizations that have no leverage to get appointments. Therefore you, as an independent agent, can offer your clients better choices with the best coverage at the best price.

Top-tier marketing and sales support

Some clusters help you maintain a superior digital presence, with the help of social network profiles and google ad words, the independent agents will undoubtedly enjoy better clientele rates and in turn, increased revenues.

Networking Opportunities

Through the IAC, you can participate in networking events such as conferences, annual meetings, and user groups can get access to the network of industry professionals. These are excellent opportunities for networking with other agents, carriers and network staff.  This network can support each other in terms of marketing, technology, payroll and others.

Technological access

In the modern day, it is very essential to be efficient in operation and technology has vastly aided this process. You as an independent agent might be reliant on a basic spreadsheet or paper-based works to manage clients. By joining a cluster, you might get access to agency management software at a better price that can vastly improve your operation as the modern agency management software brings administration, management, commissions, business development, legal compliance at one point.

Enhanced compensation

When the smaller independent insurance agencies combine under a single umbrella, it leads to improved commission structures. Agency groups make deals on commissions with insurance companies with the specific goal of getting higher rates reserved for only larger agencies. This means that individual agents can get more compensation and get better profits. Furthermore, the members can also pool in other resources to improve the financial situation.

Path to merger/partnership

Many independent agencies have the wish to merge with other agencies or partner with other agencies. Agency cluster can give the perfect platform to test the waters and see if the partnership or merger would be a good plan or not. It is also the perfect platform to find the right company to merge with/partner with.

Direct appointment

To sign with most carriers, you have to enlist in their books and only then, you can get an appointment. Typically, these carriers require you to show at least a working history of five/six years. With agency clusters, you can get a direct appointment.

Disadvantages of joining an Insurance Agency Cluster

Joining Fee

Some independent clusters have high fees. There are numerous fees that you need to be aware of: startup fees when you join, monthly fees that you might have to pay, maintenance fees for services and exit fees to leave the group. Some of the agents charge thousands of dollars just as a startup fee. So, it is necessary for you to find the right agency network.

A possibility of a weak relationship between IAC and carriers

There are high chances that carriers can reject the entire cluster because they don’t have a good relationship with them or if the agency has not been quite profitable for them. If that is the case, it might even impact your business. Thus, it is necessary for you as an independent agent to research and understand the strength of the relationship before jumping the boat.

Possible damages caused by an independent member of IAC

Some of the members in an insurance agency cluster might have a larger pool with insurance companies. When they leave, they can also take the books of business with them, and if that happens, there are possible damages that the cluster as a whole might have to bear. The effect might be long-lasting or even permanent in some cases when the remaining members in the cluster have to make up for the loss.

The leadership of the IAC affects you directly

In any association, leadership and management are key to the success of the association. If the agency cluster does not have them both, then the members have to suffer ultimately. There are chances that the agency networks might have to suffer because of bad leadership and management. Hence, you need to carefully asses the people who actually run the cluster before joining one. Make sure they have ample experience, leadership capability, and everyone’s best interests.

Unintended Fees and Financial Concerns

Do your proper research before committing to an IAC. Few questions to ask before joining:

  • Are there any exit penalties?
  • Who owns the book of business?
  • What are their commission figures?
  • Does the cluster have access to top carriers?
  • Will your operating margin change because of shared commissions?
  • Is profit sharing shared back with members in the cluster?

These are all important questions to ask to ensure that joining the cluster does not harm your agency’s value. IAC can have a very high commission split and thus, the terms at exit can also be high.

Joining the insurance agency cluster has its own rewards and risks, and if you’re an independent agent, there are numerous factors to consider before jumping the gun. The number of independent organizations that join a network or cluster has increased dramatically Since every insurance cluster can enter into its own arrangements with carriers and vendors, each cluster can differ greatly from the others. If you choose to join a cluster, please read the membership agreement carefully, the details and benefits.

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