impact of agency consolidation on insurance networks

The Impact of Agency Consolidation on Insurance Agency Networks

Insurance Agency Networks play a critical role in insurance distribution.  Most are purely a market access play for retail agencies to gain access to insurance carriers, or an option for those who are not interested in a full appointment.  The premium written through networks continues to grow as does the number of networks available for agents to leverage.  There is no indication that this trend will slow.  According to a 2014 article that appeared in the Insurance Journal, Top 20 Agency Partnerships, the top 20 agent networks account for approximately $2.4B in premium volume – a considerable amount of premium and growing.

Factors driving insurance agency network growth are:

  • Continued pressure from insurance carriers for agents to reach minimum premium thresholds to get or maintain an appointment
  • Captive agents seeking a broader product offering for their clients
  • Insurance carriers seeking efficiencies in dealing with one entity versus a large number of smaller agencies

Agency consolidation also impacts networks’ ability to maintain members and premium volume.  As the average age of agency principals continues to rise, owners are challenged with decisions on how to best transition the ownership of their businesses – either internally or externally.  Frequently, an agency that is not a member of the network purchases a member. The new owner may not have a need for a network relationship and will move the business from the network to their directly appointed insurance carriers.  The network loses premium volume as well as a book of business that was likely contributing to the overall profitability of the network’s book of business.  Growing valuable books of business with insurance carriers drives revenue for the network.  Losing a chunk of premium due to an acquisition can hurt – having it happen multiple times in a year can have a material impact on revenue.

How can a network proactively address the impact of agency consolidation?

Agents that join networks are typically in search of one thing – additional resources.  Agents are interested in new markets, access to services such as technology or training, and ultimately playing at a higher level in the marketplace.  Networks allow agents to continue to be independent and fill voids in their capabilities.

Relying strictly on a market access platform leaves a limited offering to the membership.  There is an opportunity for networks to play a bigger role in helping member agents transition their agencies.  In doing so, they can position themselves to preserve their books of business long-term. A proactive effort can better educate the network on what is happening within its membership:

  • become much more aware of agents short- and long-term ownership plans through periodic communication with agency principles
  • brings resources to the agency plant including:
    • helping develop perpetuation plans
    • preparing agents to buy or sell an agency
    • helping buyers meet sellers
    • offering agency valuation assistance
    • identifying financing to consummate deals

As an insurance agency network, think about the possibilities if you develop intelligence on your agents who are considering selling and your agents who are ready buyers that will transition a book of business without disruption to you.  This knowledge moves you from the victim who finds out about an acquisition and scrambles to save a book of business to a proactive business partner who helps two agencies maximize their plan and preserves your good book of business with a quality agent.

If a network is currently doing little to nothing in this area, how do you start making a difference?

Don’t feel you need to recreate the wheel to have a meaningful impact.  There are some outside resources you can bring to your agents that will have little or no cost to the network.

Survey – Ask your membership what their needs, plans, and timing are around transitioning ownership.  Develop a list of services beyond market access that will help you and your agents better manage the network long term.

Education – Provide webinars and seminars on topics such as perpetuation planning, selling, and agency tax implications of buying or selling, etc. Guess who attends these events? You got it – agents that are looking to buy or sell.  Analyzing attendees can be the first step in identifying agents that are interested in making a move with their agencies.

Agency Intelligence – Make a deliberate effort better to understand the long and short term plans of your agency members.  Prioritize your agents from the most talented agents to least and begin having conversations with them regarding their perpetuation plans and how you can help.

Line Up The Resources – Identify the firms with the expertise that will help agents navigate the challenges around their business plans.  If an agency is a buyer, what businesses can help them get an objective cost effective valuation to assist them in deciding on the viability of a deal or a purchase price?  If an agency is going to sell, who can advise them on what to do now to maximize the value of the agency two to five years down the road?  When an agency is ready to buy, where will it get the financing?

There is rarely one silver bullet that will cure everything and the same is true here.  However, an insurance agency network can put measures in place to help manage this issue proactively.  Time is not on your side.  Start having conversations with your agents to understand their plans and put the resources together that will help agents execute those plans.  By being part of this process, you’ll be better informed and able to influence inevitable agency consolidation.

Mike Strakhov is the Executive Director of Insurance lending at Live Oak Bank, Wilmington, NC. Reach him at michael.strakhov@liveoak.bank or 910 550-2884.