Frequently Asked Questions when Researching Alliances

June 7th, 2016

Why join a group?

As a small to medium size independent agency, there a number of challenges that we face in today’s marketplace. The real question is what do small independent agencies need to know and do to survive, compete and succeed for the future in a changing industry where the small agency is being squeezed out. We know we can’t compete with the “big boys”, but what are the successful smaller agencies doing to change their business model allowing them to capture new clients, retain existing clients and work smarter with a lean staff. These agencies want to find a forward thinking group with experience that provides more than just market access.

Can I maintain my independence?

Yes you can, however, most “groups” operate under a franchise model whereby the agency’s independence is limited or taken away altogether. If you chose to be an independent agency, you did so for a reason….to run your business autonomously and not be under the directive of others allowing you to make your own business decisions. Agencies chose the independent route versus other routes because they wanted to be able to offer more “choices” to our clients. 

How do I do my research on the groups?

Talking with existing members is the best way to find out the following. Does the group have a good reputation and do they deliver on their promises? What do the members see as the key benefits? If the agency had to do it all over again, would they have made the same decision and why? Is the agency doing better (markets, increased revenue, support for the agency staff) than if they attempted to grow their business on their own? Does the group offer direct appointments with the companies or are they simply providing us “access” to the carriers? Do I own my business and is there a non-compete provision whereby if I dissolve my membership, am I prevented from continuing to do business with the companies?

The other way to “check out” the groups is to talk with the insurance companies as the majority of the companies are participating in the “groups” and can provide valuable feedback on who they see as being the most robust in helping agencies grow, increase revenue and increase agency value for the future.

How many independent agencies are a member of a group?

Industry studies show that upwards of 30% of ALL independent agencies are members of a group and that number is growing at a fast rate. The insurance companies find many advantages in participating in groups. They are able to do business with agencies that they would not otherwise be able to appoint based on premium volume requirements. There are many smaller agencies that write quality business and have the opportunity to grow if simply given the chance to represent more and better carriers.

Is there a qualifying process to join?

Some are taking any and all independent agencies. Others require the agency to meet specific criteria to be a member. Suffice to say, those that have requirements are going to bring the more robust model to the independent agency. These groups have a great deal on the line in terms of performance with the carriers so they are seeking the quality insurance agencies.

Challenges for independent agencies:

The carriers are placing more pressure on agencies to meet specific new business and retention goals. Although a small agency in their respective communities are writing profitable business, they are finding that each year our carriers are asking for more and more new business.  The small, independent agency feels like the carriers are paying more attention to the larger agencies and overlooking the quality business that they are generating.

The carriers are making it more difficult for smaller agencies to achieve profit sharing, especially in personal lines. In years past, the companies would allow Loss ratios for profit sharing to be between 55% to 60%. Now we are seeing loss ratio entry points lowered anywhere from 48% to 52%. As smaller agencies, this becomes very difficult because they do not have $500,000 to $1,000,000 in premium with their companies to absorb the losses and qualify for profit sharing. Check out the group and inquire about premium volume commitments with direct appointments and at what point do they qualify for profit sharing.

Technology and training for staff are a challenge. Smaller agencies cannot find the time and do not have the capital to invest in these important initiatives that allow them to keep up with the changing industry, grow their business, increase retention and attract quality producers and staff. If these agencies are able to invest, they find themselves “reinventing the wheel” when some groups have already done the work and bring these resources to the member agencies at a much lower cost. When doing your research on the groups, find out what they are able to bring to the table to help you grow your business and compete with the larger agencies.

In summary, there are some forward thinking groups out there that help the smaller agency become “instantly big” allowing the agency to compete with anyone in their marketplace, but you have to do your research and choose the right group for your agency. It has to be a win-win for both. Choosing the right group allows independent agencies to bring “strength in numbers” to overcome the challenges and allow us to not only survive, but thrive! For the smaller agency in today’s industry, the question is not do we join a group, but which group do we join.