This is the first of a two-part series on joining a cluster and what you should look for if you’re considering taking that route.
There are a number of different insurance brokerage models that thrive in the U.S., but a small agency that goes it alone may sometimes find it difficult to get agency assignments and scale their operations.
One option to get out of that rut is to join an insurance agency cluster, a loose-knit group of agencies that pool their books of business to access more markets and gain leverage with insurers to help them better compete with regional and national players. Clusters allow the member agencies to share in expenses and bonus commissions from insurers, while the agencies support each other with training and advice.
The arrangements allow member agencies to retain autonomy over their own operations. But each cluster is different. Some have hands-on management that help the members thrive, while others may not be well organized and perform poorly. Some have onerous contract provisions and some don’t, and some have numerous appointments with competitive carriers and some have a few.
In other words, joining a cluster should not be taken lightly.
If this is the route you are considering, you should check out different clusters to find the one that’s the best fit for your agency. There’s a lot of ground to cover, particularly the financial aspects that you’ll need to research before pulling the trigger.
You should do this research diligently because making a bad choice can cost you. Also, after researching clusters available to your agency, you may even find that joining one is not for you after all.
Drill down
When evaluating a cluster that you are considering joining, you’ll want to review the following:
Area of operation – You’ll want to know if the cluster focuses on a certain region, and more importantly, if you are in that region. These groupings often focus on a certain geography, usually part of a state, a whole state or multi-state.
Account ownership – You and your producers have worked hard for their books of business. Your biggest incentive to keep selling is your ownership of those accounts since renewals are the long-term income stream we all shoot for in this business.
You’ll want to find out if the cluster receives a percentage of any accounts placed through shared contracts it has with carriers. If the cluster retains a certain percentage of sales generated via those contracts, you’ll also want to know the purchase formula for buying back 100% of your interest in the agency’s book of business if you decide to exit the cluster.
Fees, expenses and exit penalties – You’ll want to know the price of admission and the ongoing costs. That includes fees you may have to pay to join and any ongoing fees to pay for shared services. It’s important to ascertain how the accounting works.
The contract should outline specifically if the cluster is entitled a portion of any commissions you receive through business you wrote via a shared carrier contract, what percentage and for how long. You’ll want to know if the cluster will impose any penalties if you approach an insurer for an independent appointment.
Finally, it’s important to find out for how long you can renew policies that you wrote through the cluster after you leave the arrangement.
In part II of this series next month, we’ll look at profit-sharing, what products and insurers you’ll gain access to, the support provided and the costs and ramifications for leaving a cluster.
