When many large property-casualty insurers restricted their direct appointments with smaller independent agencies in the 1990s, clusters—agencies that joined together to pool their premium volume to attract quality insurance markets—became a new phenomenon.
Now, two decades later, 80% of more than 2,500 agencies surveyed for the latest Agency Universe Study reported using market access providers to place some commercial and personal lines business.
Agencies are increasingly using market access providers, according to the 2012 Agency Universe Study, which based the above data on 2011 operating results reported by more than 2,500 agencies.
Market access providers call themselves aggregators, networks and franchisors, and some have grown into giant enterprises, posting hundreds of millions of dollars in combined written premiums.
But many of their member agencies have direct appointments with major carriers. Some of these agency principals say they did not join these entities as a means of accessing additional markets, but rather, they’re leveraging them as a way to grow agency profits.
Among them is John Wheeler, owner of The Wheeler Agency in Lake City, Fla., which joined a network five years ago.
Wheeler, whose agency has been in business for 43 years, says his firm has “good markets” on its own, but his network’s compensation contract with carriers is better than what the agency could have negotiated alone.
“That first year since joining, we got an immediate bump in our profits, and it’s been the same thing since,” he adds.
Beyond the potential for bigger profits, agents tout other reasons why joining their peers in such organizations is valuable: sharing best practices, improving agency perpetuation possibilities, tapping risk management and underwriting expertise, and accessing wide-ranging, value-added services from accounting to public relations assistance that smaller agencies would have difficulty paying for on their own.
“Providing markets is only part of what we do—we are a multipartnering concept,” says Jim Masiello, chairman and CEO of network SIAA.
Aubie Knight, CEO of the Independent Insurance Agents of Georgia, agrees that market access is only one of several membership attractions. In Georgia, he estimates nearly 30% of IIAG members are involved with a market access provider.
“Most agencies that we see joining aggregators are not necessarily doing so in order to access markets,” Knight says. “They’re doing it to aggregate volume to enhance commissions and profit-sharing.”
The benefits of membership come with risks, including a steep financial penalty for ending a contract with a provider. Still, some agents maintain that the potential downsides are well worth the upsides.
“You lose a little control,” says Steve Horton, president of Steve Horton Insurance Agency in Longview, Texas. “There is a portion of your commission they take, but to be honest, the market access more than makes up for this.”
Horton also cites risks from other aggregator members.
“I’m in a part of East Texas that isn’t prone to hurricanes and flooding but other members are vulnerable, and the carriers can get a bit antsy,” he says. “So far, this hasn’t yet been a problem, but it [could become one].”
Another agent who uses a network, Mary Pursell, says she’s concerned about a potential loss of personal contact with carriers.
“I was a bit worried that my company relationships were jeopardized,” says Pursell, president of Abbate Insurance Associates, Inc. in New Haven, Conn. “I had heard that if you join an aggregator you no longer have the direct relationship—they do.”
“I also didn’t want my staff or fellow agency principals to perceive that my agency was having trouble getting direct appointments or was weak,” she adds. “And, of course, I was concerned that the provider would take a percentage of my commissions.”
But as it turns out, none of these issues reared into a full-blown problem.
“The profits I’ve pulled in over the past two years have more than offset the monies paid,” she says.
Russ Banham is an IA senior contributing writer.
This story is an excerpt of the Independent Agent magazine article, “More than Market Access.” Read the full story in the January IA print edition.
It is also the latest in an occasional series on independent agency channel trends identified in the Agency Universe Study, which was released in October 2012. Read an overview of the study’s top 10 findings and how agencies are marketing to sell to diverse prospects.