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Joining a cluster can help your insurance agency grow faster, and help you gain access to insurance carriers and products you could not have gotten on your own. However, agency networks and clusters charge members various fees, which can add up quickly for independent insurance agents whose book of business is still small.
You must weigh the potential profits that come from joining a cluster versus the potential thousands of dollars you could pay in fees, and decide carefully which cluster is the best for your agency right now.
Profit-Sharing: What's in the Agreement?
Different insurance cluster groups operate differently. For example, while some clusters charge a flat monthly fee, others retain a percentage of your commissions. There are some who even do a combination of both!
There are 4 main costs of joining an insurance cluster group. Not all groups charge them, so you have to be careful when doing your research to determine whether any particular group is the right one for you.
Startup Fee
Many clusters charge an initiation fee that ranges from a few thousand to tens of thousands of dollars, just to onboard your agency into the group. This may be a big burden for a small agency that is just starting out; if this is your case, seek a cluster with no sign-in fees.
Monthly Fees
Like we mentioned a moment ago, some clusters charge a fixed fee, others retain a percentage of your commissions, and others use a combination of both. If your cash flow is still unsteady and you cannot be sure you can pay a fixed fee monthly without hardship, a percentage system would work much better for you, since your fees would be less on slower months.
Maintenance Fees
Some groups charge maintenance fees for shared services and benefits, which may include a service center, licensing an agency management software, insurance services for members, and more. In most cases, these are a good investment, since shared expenses reduce your overall operating costs.
Exit Fees
Read all of the fine print carefully before joining a cluster. Many clusters try to discourage churn by charging elevated exit fees, making you buy your portfolio back, and enforcing non-compete clauses that may leave you in a tight spot if you decide to leave.
What Are You Paying For?
There’s a reason you want to join an insurance cluster group, and the fees should not stop you if the benefits are good enough.
Market Access
First and foremost, the strength in numbers gained by clustering up will improve your negotiating clout with insurance carriers, helping you gain access to carriers, products, and services as well as better commissions.
Profit Sharing
Since a group has greater bargaining power, your revenue from carriers may increase between 20-40%. Make sure you understand clearly how profits are shared among members, whether you are eligible to receive them from the start, and how your profits will be protected from other members’ losses.
Training/Development
Investing in training is always a good idea, but it’s even better if you can split the costs among many. Larger insurance clusters develop and offer their own training, coaching, and mentorship programs, which may include sales, insurance knowledge, business management, and more.
What You Should Know Before You Join
Joining an insurance cluster group sounds very attractive if you focus on the perks and benefits, but you should take some time to research reviews from current and past members before taking the leap.
Some things you definitely need to know before joining:
- Will you have immediate access to all of the insurance carriers in the cluster, or are there conditions before you can get all of the services and products?
- Will you retain full ownership of your book of business, or must a portion become the joint property of the cluster?
- Do you qualify to join? Are there conditions you don’t meet yet?
An insurance cluster is a quick avenue to agency growth, but be cautious and thorough when studying your options and deciding who to join.
