who is the redheaded stepchild of allstate's Distribution system?

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Figuring out Clusters and Networks
By Mike Stroman
As many agency owners shift
from the Allstate distribution
model to an independent agency
model, they are offered the opportunity
to join clusters or networks (networks
for this discussion) of existing agencies.
While almost all of the alternatives offer
attractive features and benefits, there are
a quite a few key questions you should
ask in order to make a good decision.
Ownership of Business - It’s important
to know up front who will own the
existing business that you bring to the
network, such as your flood book. Typically,
this is business you either bought
or produced on your own, so giving up
ownership rights to a network makes
little sense, although we’ve seen quite a
few agreements that give ownership to
a network upon joining. The same does
not hold true for new business, as the
network may have provided resources
that allowed you to write the account, so
sharing the ownership may make perfect
sense. Many networks create a de facto
ownership in charging an exit fee if you
leave the network. It is generally based
on revenue from the prior 12 months.
Regardless of what form it takes, be
aware of any obstacles in the network
agreement that prevent you from selling
your business to the person of your
choice, or sharing the proceeds of a sale.
Another consideration in the ownership
and disposition of an agency is
whether the network is granted any
rights in the event of your death, disability,
retirement or termination of the
agreement for any other reason. Depending
on the type of network, you may
be giving the network, or other network
members the first right of refusal.
Termination – Under what circumstances
may your connection to the network
be terminated Generally, agreements
are for a period of time, with an automatic
extension unless cancelled. Is there
a penalty for early termination What
notice period is required – 6 months 12
months Can the network agreement be
terminated “for cause” by either party
What continuing obligations do you
have to the network if the agreement is
terminated Frequently, networks provide
benefits to network agencies by providing
ordinary business services, such
as automation services. Are you able to
continue purchasing these services at
prices comparable to the network’s Perhaps
most importantly, can you continue
to access the network’s insurance carriers
during the notice period and following
termination of the agreement
Compensation – The big questions
center on compensation issues. Will you
be paid as a percent of new and renewal
commission received by the network, or
will you grant the network a fixed percent
of premium for administration Is
there a formula for distributing contingency
payments among the members of
the network, and is that formula weighted
only towards production, or is there
a profit component as well More than
one highly profitable agency has been
stung by being a member of a network
that has one or more agencies that never
generate a profit for their carriers.
Does the network share with all the
member agencies any trips that are
earned This may seem a little petty, but
some of the trips are incredible, and if
the network distributes trips only to the
largest members, someone else may be
taking the trip you earned.
Finally, does the network pay commission
only on accounts above a certain
commission Some networks consider
the cost of writing small accounts to be
too high, and they retain all the commission
on those accounts.
Employees – This presents an interesting
dilemma. While some networks
offer a PEO of sorts, offering benefits
that are well beyond the reach of most
agencies, is it really in your best interest
to have the network controlling any elements
of your employees lives Do you
have full authority to hire and fire, give
or withhold raises The best of all worlds
has you purchase benefits as you might
from a PEO, but with the benefit of a
larger group making the purchase. If not
set up properly, this is an area that can
create a division between you and a good
long-term employee.
Agency Management Systems – On
the surface, this area seems pretty simple,
but in reality, it creates some complexities
that you may be faced with down the
30 — Exclusivefocus Winter 2011/2012