This is the second part of a two-part series on the factors you should take into account if you are considering joining an insurance agency cluster.
Last week we looked at a number of issues that an agency needs to consider when looking to join a cluster, including area of operations, account ownership and fees and expenses. In this article we look at other important parts of the cluster relationship that should be top of mind.
One of the other areas that you’ll need to investigate is how profits are shared among cluster members.
When a cluster has a profit-sharing contract with a carrier, all of the cluster members’ combined premiums with that carrier are aggregated for the purposes of profit-sharing. Typically, these profit-sharing checks are paid out if the grouping writes a certain amount of premium and if those accounts combined stay below a certain loss-ratio threshold.
Profit-sharing plans can greatly increase your revenue from insurers the cluster has contracts with, but all of these contracts have nuances and specifics that you’ll want to know in advance, including:
- How is profit-sharing apportioned among the member agencies? There are many ways to do this, including share of premium with the contracted carrier.
- Are there any criteria that would preclude an agency’s participation in carrier profit-sharing (such as a loss-ratio threshold).
- Does the cluster have a profit-sharing estimator available to its member agencies?
- What are the premium volumes and loss ratios of the cluster business with its main contracted carriers that offer profit-sharing?
- Does the cluster protect the profit-sharing of agencies that bring low loss-ratio accounts against agencies that are bringing poorly performing accounts?
Insurers, products and support
You’ll want to know which insurance companies and products your agency will have access to once it joins the cluster. Preferably, they should have access to carriers you currently don’t. But getting access to new insurers may not always be in your best interest if you don’t often sell the types of policies they offer.
So, you’ll want to make sure that you will be getting access to insurers that complement your current book and that you’ll be able to sell policies for coverage your clients actually need.
Also check to see if they have access to any niche carriers that can benefit your agency and customers.
These issues can ensure that the cluster benefits your agency or instead turns out to be a burden for you.
Also, some clusters are loosely organized, but that can be an issue in case a problem arises. There are a number of issues that can crop up, like you needing assistance with marketing, license and compliance issues.
As well, if you have an account that is difficult to place, how much support will you receive from the cluster? You’ll want to know how much support the grouping provides its members.
Leaving the cluster
If you join a cluster, you want that relationship to be for the long haul. But sometimes things change and you may find that other agencies in the grouping aren’t pulling their weight or are dragging down the cluster book’s loss ratios. Or perhaps you find a cluster or other arrangement that is a better fit.
In other words, there may come a time when you want to pull out of the cluster.
Before joining, you’ll want to find out what the cluster’s rules are for when you want to severe the relationship, such as:
- Can you take your book of business with you?
- Are there other restrictions or time restraints?
- Are there any required costs if you want to leave?
- After you leave, are there penalties if you approach an insurer the cluster contracts with for an independent appointment?
- How long can you renew policies that you wrote through the cluster after you leave?
You’ll want to look all of this over to ensure that the cluster’s termination rules are reasonable and are not going to leave your agency with significant costs or loss of income.
After doing your research, you may find that a cluster is not a good fit for you. Or perhaps the grouping you are considering has all the missing pieces to your agency’s puzzle.