Agents Weigh Independence, Commissions, Markets When Choosing Agency Networks

Rising Costs, Soft Market Cause Agents to Consider Network Options

Maintaining their independence while gaining access to resources and markets are what independent agents consider when deciding whether to join an insurance agency network and which one to join.

The soft market is also an influence.

“In a soft market, networking gives a mid-sized agency expanded resources and products,” said Richard Heckle, owner and agent for Dean, Heckle & Hill Inc., an independent agency located near Charlotte, N.C.

Gaining access to resources is a main advantage of joining a network but this access can come with conditions and may cost an agency its independence, even its identity. Heckle’s desire to retain control over which insurers he places individual accounts with was the primary reason he chose Iroquois Group over another agency network group.

“Independence is key,” Heckle said. “The competitor we looked at before choosing Iroquois wanted us to have 80 percent of our premium volume in the core companies of that network. Though we wanted access to bigger and more carriers, we were unwilling to give up our independence,” he said.

Heckle said that a high initiation fee, plus a hefty monthly fee along with a requirement to change the agency’s name to that of the network’s name were all added nails in the coffin during the selection process. The final nails? An additional charge and required notice one-year before quitting the network — if he decided to leave.

“With Iroquois there was no signing-on fee and there is a one and a half percentage monthly fee in addition to 10 percent of the commission,” he said. “If you decide to leave you need to give notice 120 days in advance, but no additional monies are charged,” Heckle added. “And most important, we retain our name and identity.”

Another plus — Heckle says the agency retains 100 percent of commissions in specialty market areas with Iroquois, “and that factor was a big one in our decision too,” he added.

Iroquois Group is a network of more than 1,350 independent agencies in 34 states.

Heckle’s agency joined Iroquois Group on July 1, 2008, so the benefits, and perhaps the challenges, have yet to emerge. But thus far, Heckle is pleased with his decision.

Picking and Choosing

Like Heckle, Ronnie Tubertini, president of South Group in Ridgeland, Miss., said he joined Associated Risk Managers (ARM) because of the independence it allows, as well as the availability of new programs.

His agency joined ARM when it merged with about 16 others and became South Group. “The benefits of shared information, access to carriers and additional programs remains a distinct plus for an agency that is our size,” Tubertini said.

ARM International is owned by Itasca, Ill.-based Arthur J. Gallagher.

“We share in the profit sharing and producer groups that Gallagher has to offer and all the additional programs because of this affiliation, which is another bonus,” Tubertini said.

Currently, ARM has members in Mississippi, Arkansas, Alabama and Louisiana. It has an office in Jackson, Miss., and is hoping to expand into Florida, Georgia and Tennessee.

ARM is not alone in operating regionally. A number of insurance agency networks have members across the country, while others, including ARM, operate regionally, with agency members in one state or across one region.

For example, Telamon Insurance Network, launched in 1981, has about 300 agency members located only in the New England states. Membership in Telamon allows access to standard insurance companies as well as to excess and surplus lines companies.

Networks Vary

Some networks offer smaller or mid-sized agencies a connection to specialized insurance programs, which is especially attractive to agencies that handle or want to get into niche markets.

According to Madelyn Flanagan, vice president, education and research for the Independent Agents and Brokers of America (IIABA), some agencies with “niche expertise” find favor with carriers when they join a network that helps them advance that niche. “Agencies want to specialize in certain areas and the carriers see that as a plus for their business,” Flanagan said.

Some networks provide added marketing and technology assistance; others allow agencies to keep their own computer systems and conduct their own advertising and marketing.

Some network charge higher commissions and monthly fees and may require the agency take the name of the network. Others don’t.

Grass Valley, Calif.-based Networked Insurance Agents’ members keep their own name and their own book of business. Members pay a fee of between $150 and $225 per month, varying by state. Networked does not charge a policy issuance fee, even on excess and surplus lines business, says Marc Beaulieu, senior vice president of Strongwood Insurance Holdings Corp., which operates Networked.

“We (Networked) provide our affiliates with the highest level of commission in the business and we charge no broker fees,” Beaulieu said. “In addition, we provide access to profit-sharing for those growth-oriented affiliates who want to access our partner carriers directly.”

Members receive at least 60 percent of the commissions they earn, according to Beaulieu.

“Networked brings more tools to its affiliates and that is definitely a draw for many agents to sign-on,” Beaulieu said.

Commission Incentive

Agencies naturally want to keep the highest share of commission they can when joining a network group, and commissions can be a factor in deciding whether to join and when selecting one network or group over another.

When he was New York attorney general, Eliot Spitzer criticized acceptance of contingent commissions by agents and brokers as a conflict of interest. Spitzer’s questioning of this revenue source proved to be a catalyst for agencies to join networks.

“After the Spitzer ruling [on continent commission income], profitability was definitely an issue,” said IIABA’s Flanagan. “Agents realized quickly that the same ever-rising costs of doing business existed, but they were faced with a decrease in income because of the ruling that eliminated contingency commissions,” she said.

Post-Spitzer, Flanagan said agents began looking for options to increase their revenues and more agencies looked to networks.

“Not only are more agents joining networks, but the number of mergers keeps increasing as well,” Flanagan said.

According to Flanagan, networks can help alleviate the pressure smaller agencies are under to merge. “Agencies in the $1.25 million to $2.5 million in revenue range are merging with others in record numbers. It is becoming rare to find a very small agency group,” Flanagan said.

Word of Mouth

For other agency owners, word-of-mouth recommendations have played a role in their decision to join or choose one insurance agency network over another network.

Being able to talk to fellow agents he knows and respects about the benefits of joining one network over another helped Matt Frierson, owner and agent in the Pierson and Fendley Insurance Agency in Paris, Texas, make the decision to join Combined Agents of America.

“We knew some agents we could count on to give us the straight scoop about CAA — so we asked,” Frierson said. “Combined Agents of America is located in Texas and is a natural choice for us because it allowed us to remain independent and keep control of the business that we built.”

Founded in 1997, CAA is based in Austin, Texas, and is comprised of 30 independent insurance agencies throughout the state.

For Frierson, there were three selling points that swayed his decision: CAA had accountability in the new markets area; it helped agencies with outside resources, and it had staff people who were experienced in dealing with the problems Frierson’s agency encountered.

“We had a sounding board we respected,” Frierson said. In addition, Frierson liked the fact that CAA allows each agency to use its own technology systems.

Frierson said carriers in a soft market prefer to deal with agencies that represent many carriers. Rather than dealing with 1,500 small independent agents, carriers can deal with a network of agents to save time and money.

IIABA research suggests that agents will continue to move to agency networks that offer access to carriers, programs and resources and still allow for agency independence.

IIABA’s Flanagan predicts continued interest in networks as well. “We see the network system for agencies continuing to grow each year,” Flanagan said.

Topics Carriers Texas Agencies Market