Insurance Agency Cluster Agreement - What to Look Out For

Agency aggregation is a growing trend in the insurance industry. As more and more agents break free from carrier captivity and struggle on their own as independent agents, they discover that carrier access and negotiating is easier when premium volumes are combined to make a bigger book of business.

Insurance companies offer better terms to those who can demonstrate higher premiums, and so it is very attractive to join forces with other agency owners and independent agents to gain access to those higher commissions and profit-sharing.

If you’re considering joining an insurance agency cluster, do your homework first and understand very clearly what you are signing up for. Every cluster has its pros and cons, and all are managed differently.

What are the Pros & Cons of Joining an Insurance Cluster?

If you’re just getting started as an independent, the pros will be very attractive. However, carefully consider the cons before making any big decisions.

Pros of Joining an Insurance Cluster

• You remain independent, and in most cases you retain 100% of your portfolio and contracts (beware of the exceptions, though).
• Insurance carriers you could not have worked with on your own are now within reach thanks to the cluster’s negotiation power, and you should have access to more favorable commissions and deals, as well as products that were previously beyond reach.
• Insurance clusters usually offer many perks to their members, such as discounted or free software, training and education, 1-on-1 coaching, and more.

Cons of Joining an Insurance Cluster

• Some clusters, alliances or networks demand that you turn over a percentage of your portfolio, and if you ever leave, they may block access to the carriers they offered you.
• There are various costs or fees to a cluster. Some are cheap to join but make up their revenue on the back end by keeping more of the money you earn. Others have high monthly fees that can constrict revenue for a small agency. 
• A cluster is only as good as its leadership. If the leaders don’t have the commitment, know-how, or drive to push ahead, the cluster will not benefit you as much as it should.
• Also, some clusters may retain the lion’s share of commissions and profit sharing for themselves instead of passing them on to you and other member agencies. 
• Some clusters, alliances or networks require that your commissions funnel through them, which means that you will have to wait for them to pay you after they carrier paid them.

What are the Differences between Networks, Clusters & Aggregators?

Some terms have firm definitions, while others are left open to interpretation. For example, if we talk about insurance associations, you know we’re referring to formal associations of insurance agencies established to provide members with mutual support and group benefits.

However, terms like insurance networks, clusters and aggregators are used interchangeably in the insurance industry. The difference lies in how each one is operated individually, but the name will not tell you anything about it. An agency network could work the exact same way as one that calls itself an insurance cluster, while another agency network could be run in a very different way.

Long story short, there is not a lot in the name. You have to do your research, ask questions, and seek out references before choosing which insurance agency cluster (or network, or aggregator) is right for you.

What's in the Fine Print of the Agreement?

Like we just said, each insurance cluster, network, and master agency operates differently. That said, look for these aspects in the agreement, make sure they are clear, and do not sign anything without your lawyer’s green light.

Carrier access

A cluster may have relations with many carriers, but will they all be available to you immediately upon joining, or will there be conditions before you can sell their products? 

Account ownership

The whole point of joining a cluster is to combine your books of business to get more leverage when negotiating with carriers. That said, you should retain sole ownership of your book - some clusters may force you to “buy it back” if you decide to leave. 

Ask as many questions as you need to until you understand the conditions in which your contracts and business are considered in relation to the cluster’s book, and in terms of an eventual exit.

Profit-sharing

When you’re working with a team you all thrive in good times and support each other in hard times through profit sharing.

Transparency is key: how is profit divided among members? Will you qualify to receive a share immediately, or are there requisites? How are poor performance and high loss ratios from members managed so it doesn’t affect the rest too much?

Fee structure

Insurance clusters charge sign-up fees, membership fees, and sometimes also maintenance fees and even exit fees. Do your research, read reviews, ask current and former members, and be sure that there are no hidden fees before you sign.

The fees are not the problem - a good agency network will give you plenty of perks that should more than justify your ongoing investment. The problem is lack of transparency: you definitely don’t want to hitch your horse to a network that is not clear and upfront with what they charge, since this may be a symptom of bigger issues.

How Long Does the Agreement Last?

A long or short agreement can be the better option depending on your situation. You need to keep your eye on a few things:

• Getting into a contract that is long enough for you to reap the full benefits of the partnership, and ensuring you can extend the relationship if you are happy. Will the terms change if you choose to renew or extend your membership?
• Exit procedures. Are there non-compete clauses, and how restrictive and long are they? Will you have to wait to regain control of your contracts and portfolio? This is something you want to have a crystal-clear understanding of before signing.
• What does the length of the agreement tell me about the organization? If the agreement is short, are they invested in helping me be successful, or do they just want my premiums? With a longer contract, clusters can invest more time and effort into helping your agency grow, as well as helping other member agencies. Remember: the better the agencies in your cluster do, the more clout the cluster has to negotiate on your behalf with carriers.

Should You Join an Insurance Cluster Group?

That’s the big question! While only you know what your goals and priorities are, we will be very happy to talk to you about what we have to offer, so you can decide if SIAA is a good fit for you and your promising insurance agency.

Is SIAA an Insurance Cluster?

SIAA is in itself neither an insurance cluster, an aggregator, or a network. SIAA is a country-wide network comprised of 48 master agencies all over the United States, with almost 5,000 members who collectively write $9.1 billion in premium. Should you decide to join us, you would be a member of one of these master agencies, which will leverage its local knowledge, relationships, and expertise to help you grow.