Insurance cluster groups, aggregators, and agency networks are three options for independent agents within the insurance industry that each offer their own unique advantages. However, there are some distinct differences to take into consideration when deciding to join any of them.
What Are Insurance Clusters, Aggregators, and Networks?
Definition and Purpose of Each
Insurance clusters, aggregators, and agency networks are organizations that enable independent insurance agencies to collaborate and share resources, ultimately enhancing their market presence and competitiveness. Each type of organization serves a distinct purpose:
- Insurance Clusters: These are groups of independent agencies that band together to share resources, expertise, and risk. Clusters aim to provide members with better access to insurance carriers, improved profit-sharing opportunities, and cost savings on operational expenses. By pooling their resources, member agencies can negotiate better terms with carriers and achieve greater market access.
- Insurance Aggregators: Aggregators are organizations that bring together multiple independent agencies to negotiate better deals with insurance carriers. They often provide a more structured approach to insurance aggregation, focusing on growth and profit-sharing opportunities for their members. Aggregators can help agencies increase their bargaining power, secure higher profit shares, and access a broader range of insurance products.
- Agency Networks: These networks provide a partner for independent agencies, offering scalable support to match individual agency needs. Agency networks can help agents grow their book of business, increase agency valuation, and access top-rated markets and carriers. They offer a range of services, including marketing support, training, and consulting, to help agencies thrive in a competitive market.
Key Differences Between Insurance Clusters, Aggregators, and Networks
While insurance cluster groups, aggregators, and networks share some similarities, there are key differences between them:
- Structure: Clusters are typically smaller, more informal groups of agencies, whereas aggregators and networks are often larger, more formal organizations.
- Purpose: Clusters focus on sharing resources and expertise, while aggregators prioritize negotiating better rates and terms with insurance carriers. Agency networks emphasize collaboration, training, and support.
- Membership requirements: Clusters often have fewer membership requirements, whereas aggregators and networks may have more stringent criteria, such as minimum premium volume or business standards.
Why Join an Insurance Cluster Group?
Deciding to join a group of agencies would be an ideal choice if your goal is to align a single market, like coastal, with other agents that have the same market in order to meet growth, loss ratio, and profitability goals. For an agency owner, joining a cluster group can provide valuable support and networking opportunities. If you have no desire or need to access any other type of assistance beyond the market you’re seeking via the group, a cluster may be the right choice.
Conversely, the cluster’s structure may pose some challenges such as how accounting is handled and establishing a fair and equitable position for each member — especially when some agencies in the cluster may have a more established position already. It’s also important to consider the monthly fees associated with cluster membership, which can vary based on the terms and length of membership.
What about Insurance Aggregators?
Aggregators are similar to insurance cluster groups but often work with several markets. Aggregators often provide additional services, such as agency management software, which can help reduce operational costs and improve efficiency.
If you’ve built a decent book of business with a carrier or market and are simply looking to increase your chances to earn higher profit shares by combining your premiums with other agencies, an aggregator is an obvious choice. Joining an aggregator and having the prestige of a larger book will help you be able to negotiate with larger carriers for better premiums and new appointments.
Most notably, with both clusters and aggregators, agents must have something to bring to the transaction before ever engaging with the group.
Insurance Agency Networks and Their Advantages
If you’re looking for a partner that can scale their level of support to match the individual needs of a group of agencies and negotiate on your behalf, a network is probably the way to go. An agency network can be particularly beneficial for an independent insurance agency looking to scale its operations and access new markets. An agency network gives you:
- Access to a wide variety of different markets
- The opportunity to get you appointed with carriers
- The chance to aggregate the current business you may have
- Other tools to help you establish your agency, like marketing and continuing education
- Access to dozens of local and national markets
- Advice on how to navigate the independent agency world to maximize revenue opportunities
Even if you’re a relatively new agency, a unique benefit of some networks includes the ability to evolve in the growth process through programs. Agencies who don’t quite qualify for a code are able to write business through the network’s major carriers via an in-house underwriting team until a code is awarded.
Conversely, a broker or wholesaler can also provide market access in many cases but will not look to enable or assist the agent in moving that business to a sub-code in the agent’s name. The agent will be building up value for the broker/wholesaler but never growing their own agency valuation. So, a network really works on behalf of the agent to help them grow their book and agency valuation.
If it’s a good network, they should be working on behalf of the agent, but not take any ownership or stake in the agent’s business. The agent is free to choose which network support and services they want to utilize, but don’t have to use anything. You are not held captive. You choose the resources your agency needs to match your own vision.
Evaluating Your Agency’s Needs and Goals
Costs and Fees Associated with Joining an Insurance Cluster or Aggregator
Joining an insurance cluster or aggregator often involves various costs and fees. Understanding these expenses is crucial for independent agencies to make informed decisions:
- Initiation/Start-up Fees
- Monthly Fees for Insurance Cluster or Aggregator
- Maintenance Fees and Equity Interest
Initiation/Start-up Fees
Initiation fees are a one-time payment made by independent agencies when joining an insurance cluster or aggregator. These fees can vary significantly, ranging from a few hundred dollars to thousands of dollars.
The cost of initiation fees should be carefully considered, as they can present a barrier to entry for agencies with limited capital. It’s important to weigh these initial costs against the potential benefits of membership, such as improved market access and enhanced profit-sharing opportunities.
Monthly Fees for Insurance Cluster or Aggregator
Monthly fees are ongoing expenses charged by insurance clusters or aggregators to their member agencies. These fees can be structured in various ways, including:
- Fixed Rate: A set monthly fee, regardless of sales or revenue. This structure provides predictability in budgeting but may not be as flexible for agencies with fluctuating income.
- Percentage of Sales: A fee based on a percentage of the agency’s sales or revenue. This structure aligns costs with revenue, making it more adaptable to changes in business performance.
- Combination: A combination of a fixed rate and a percentage of sales. This hybrid approach offers a balance between predictability and flexibility, allowing agencies to manage costs effectively.
Understanding the fee structure is crucial for agencies to assess the financial implications of membership and ensure that the costs are sustainable in the long term.
Maintenance Fees and Equity Interest
Maintenance fees are expenses charged by insurance clusters or aggregators to cover various costs, such as:
- Marketing: Expenses related to promoting the cluster or aggregator and its member agencies. Effective marketing can enhance the visibility and reputation of member agencies, driving business growth.
- Consulting Services: Fees for consulting services provided to member agencies. These services can offer valuable insights and guidance, helping agencies optimize their operations and achieve their business goals.
- Agency Management Software: Costs associated with providing agency management software to member agencies. This software can streamline administrative tasks, improve efficiency, and enhance overall agency performance.
Some insurance clusters or aggregators may also assume an equity interest in member agencies. This can impact ownership and control, as the cluster or aggregator may have a stake in the agency’s decision-making processes.
Agencies should carefully consider the implications of equity interest, as it can affect their autonomy and long-term strategic direction.
What Will Be a Good Fit?
Independent agents have distinct advantages in the insurance world over their captive counterparts. For an independent insurance agent, the ability to deliver custom insurance solutions at the best price sets them apart with their clients.
However, they also face the same main challenge — growing enough to satisfy the requirements of top carriers. Joining a group of agencies can provide the collaborative support needed to overcome these challenges.
Think about the size and age of your agency. Determine your biggest pain point(s). What resources would ease the burden of doing business and enable you to take your agency to the next level? What is the lowest point of entry into one of these groups that would give you the resources you need to increase your revenue immediately?
When choosing an insurance agency cluster, investigate what it will take to join and what steps you’ll need to take if it is not the best fit. You will want to carefully examine your responsibilities to the group and any expectations you will need to meet over the course of the partnership. Above all, make sure you’re gaining a true business partner and that the objectives and goals of the group align with your own vision for your agency.
Working with an Insurance Agency Network
Smart Choice is a group of agencies with over 25 years of experience connecting independent agents and carrier partners. Smart Choice provides agency owners with access to top-rated markets and over 100 carriers. Not only do we provide access to top-rated markets and over 100 carriers, but we also support independent insurance agents through product training, sales and marketing support, and continuing education opportunities.
Smart Choice is a good fit for start-up, former captive, and experienced agents looking to grow their book of business.
- Insurance Cluster Group