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Understanding Cluster, Alliance, or
Network Organizations for Those Looking
to Start an Independent Agency
By Joe Totah
There are all kinds of agency networks
across the U.S. and worldwide. Many
of these groups refer to themselves as
“clusters,” but there are also franchises,
alliances, and other types of networks.
Regardless of what they call themselves,
they are basically master agencies; that
is, a group of retail agencies under one
master agency code. Most carriers now
recognize these organizations further by
giving sub-codes to their member agencies.
More often than not, a sub-code
shows the member agency name, not the
master agency name. For the few carriers
that don’t sub-code, it will show the
master agency name, though this has not
been the norm recently.
Most of these organizations are open
to admitting new members, though
some may be restricted to the existing
agency members. Many welcome startup
agencies, while others have minimum
requirements to join, or only accept established
agencies with a minimum premium
volume. Nearly all of these groups
have an initiation fee, often several thousand
or more, to join. Monthly fees can
vary; from a percentage of commissions
to a fixed monthly fee, or a combination
of these. Typically, a prospective member
completes an application process that is
then reviewed by the decision makers of
the organization. You may need to submit
a business plan or an agency profile
report along with the application. You
may also need to provide a loss ratio history,
because the last thing these groups
want is an agency with loss ratio problems.
Therefore, if you have had some
great loss ratios as a captive agency, I
would include this information, as it can
only help your case and demonstrate that
you are a good underwriter.
A cluster is a very good idea, if not essential
for the small to mid-size agency
in the current marketplace. In most cases,
a cluster will provide you with all the
carriers you need. It will negotiate with
these carriers and you’ll generally share
in the profits. Speaking of profit-sharing,
it’s very difficult for a smaller agency to
meet minimum requirements to achieve
it. Master agencies allow this to be possible
by pooling their volumes. Most of
these organizations claim a certain percentage
of the profit-sharing, but often
return a varying percentage back to their
members, based on a certain formula.
How do you choose which is the best
organization for you The first step is to
visit the websites of those operating in
the state you are in. You can find a list of
these organizations and the states where
they operate at http://www.agencyequity.com/insurance-agency-clusters.
14 — Exclusivefocus Summer 2011