Whether you’re a producer at an independent agency or a captive/exclusive agency owner considering starting your own independent agency, you’ll without question be faced with the decision of starting completely independent or partnering with a network/cluster. This article is aimed to identify reasons why you should carefully evaluate both options to determine what is best for you and your future independent agency.
Aside from getting your agency running administratively (filing corporation, license, opening bank account(s), acquiring insurance, etc.), one of the most important things to consider before you go independent is what markets/carrier partners you’ll look to get appointed with once you’re ready to write business. If you google ‘independent agency carrier appointments’, the first page of results consists of clusters’ websites with the exception of one carrier website offering reasons why you should represent that carrier. So in a list of 10, if all but one suggest to get carrier access through a cluster, what does that mean? What is the difference between getting carrier access through a cluster or directly with the carrier? Below are few of the differences to consider.
- Agency Revenue (commission & profit sharing)
- Volume Commitments
- Ownership of Policies
- New Appointment Process
Let’s break it down…
A direct appointment with a carrier means you get 100% of the commission being paid whereas with a cluster, you may earn less than 100% of the commission. If you choose to partner with a cluster, it’s essential that you know exactly how much commission you will receive and how the commission is paid to your agency (i.e., does the commission go to the cluster first then your agency or is it paid directly from the carrier into your agency’s bank account?).
A direct appointment with a carrier also means that when you qualify for profit sharing, your agency keeps 100% of it whereas with a cluster, it’s up to the organization how much of the profit sharing they’ll distribute to the members. The biggest difference is that profit sharing on your own via a direct appointment with the carrier requires a minimum volume to begin earning and with a cluster, often times you can earn profit sharing on smaller amounts of premium and sometimes even with no minimum premium at all. The idea of profit sharing with a cluster is that by aggregating the premium, the group as a whole can withstand more losses but still earn profit sharing because of the volume of the aggregated premium. For this reason, it makes sense to consider a cluster because you can still earn profit sharing even in the unfortunate event of a large loss on your book.
While revenue is likely most important to any organization, when it comes to being an independent agency, the idea is choices, right?
The amount of choices (carriers) you will have might be dependent on the volume commitments associated with each. A direct appointment with a carrier is almost always going to require significantly higher volume commitments than if you were to get appointed through a cluster. This is probably a turn off to any agency owner who wants choices but the amount of carrier appointments an agency takes on should also be carefully considered. While there are some niche carriers who specialize in what they write (i.e. high net worth clientele, manufactured homes, etc.), a lot of them are going to cover the same appetite and for this reason you should be selective!
One of our affiliates said it best when they said you should go deep with a few carriers instead of shallow with a lot.
Point being…your time is better spent selecting the carriers to partner with rather than selecting which cluster give you the MOST carrier access.
Ownership of Policies
I think it goes without saying that if you have a direct appointment with a carrier, you/your agency owns the policy. If you have an appointment through a cluster or you use the clusters’ appointment to write business, this may not be the case. So how can you be sure?
What does it look like if you were to breakaway from the cluster? Can you take your appointment with you? If you can’t take the appointment with you, in which case you’d have to get appointed with each carrier upon leaving the cluster, will the cluster sign off on your policy list? Do you have to purchase your policies/policy list? The breakaway from any organization can look very different so knowing exactly what it will entail prior to signing up is the best way to protect your agency and your policies.
Now, it should never be the intention to breakaway from someone you choose to partner with but the reality is that some agencies get up and running using the cluster route but in time, that option may not be what’s best for your agency and your clients and therefore you may need to consider breaking away. It’s best to be informed of what that will look like prior to being faced with that decision.
Bottomline…you may or may not own your policies if your access is through a cluster so do your research. Interview every cluster and then interview them again once you’ve narrowed your options. Request copies of the contracts and seek legal advice so that you know without doubt what you’re signing up for.
PIIB has put together a ‘Common Questions’ document that we think you should ask every cluster. Feel free to use it as a guide to your interviews.
New Appointment Process
The first step to getting a direct appointment with a carrier is to get their attention and actually get a response. You have to navigate through each carrier organization to get to the local sales rep that would potentially appoint your agency. If you are a producer at an independent agency and considering going out on your own, you may have these contacts in place and if you do, those relationships are more valuable than gold! So if this is you, nurture those relationships NOW so that when you take the leap and start your own agency, these carrier reps know your target market, clientele and trust the way you do business. They will be much more inclined to appoint your new agency if they know you and the integrity of your way of doing business. If you are a captive agent looking to go independent, there’s still hope. This second type though can face some challenges in getting the independent carriers’ attention, not always but I’ve seen it happen often.
In some ways, a cluster can be like a pre-vetting mechanism for the carriers so from that standpoint, I think the carriers see value in the cluster relationships because IF they understand the clusters’ vetting process and trust it, they know any agency a cluster sends their way is essentially pre-vetted.
If you don’t have the carrier relationships already, the appointment process can look MUCH different getting appointments through a cluster than on your own and in this case, my opinion is that going through a cluster is a much simpler process. When you are going through getting your agency up and running, finding means to make the process simpler can make all the difference.
So what now…
The purpose of this article is to provide valuable, real information that can help you make owning your own independent agency a reality.
Main thing…when you open your independent agency, you will need carrier appointments. If you decide that getting that carrier access through a cluster is the best choice for you, know that there are MANY different models out there so ask about the four key points discussed. Also, google each clusters name followed with ‘forum’ to see what other independent agents have to say about each.
Last, PIIB wants to help! If you’ve been considering starting your own independent agency and any obstacles that you’ve faced were not covered in the content here, please reach out so that we can provide the most comprehensive advice for anyone in your shoes. We’ve been helping independent agencies for 26 years and we are dedicated to continue to do so, genuinely.