Requirements by insurers, market factors cause agents to join forces

Excerpt from Business Insurance
by Eileen P. Gunn

Insurers now realize that one of the best ways to increase profitability in a soft market is to write a high volume of coverage through a limited number of larger agents.

But, while this strategy pays off for insurers, it also pressures small and midsize agents to grow fast - or get squeezed out altogether.

Some independent agents are countering this market reality by joining agency networks. These agency executives believe that by giving up a little - usually a small stake in their companies, membership dues, or information about their product lines and operations - they can remain independent and even grow without having to merge or invest in acquisitions and expansion.
James A. Masiello's Satellite Agency Network in Keene, New Hampshire, is succeeding with a formula in which a larger agency expands its business by gathering a group of small agents and giving them access to a greater number of insurers than they would be able to contract with on their own.

"We effectively have a distribution system" without hiring additional staff for his agency, increasing office space or purchasing more computer power, Mr. Masiello said.

One of Mr. Masiello's satellites is the McBriarty Insurance Agency in Milford, New Hampshire, which has a premium volume of $2 million. Jack McBriarty, the agency's principal, said affiliation with SAN gives him access to a wider range of insurers than he would have on his own, the opportunity to buy computers and software as part of a group, additional support and staff and an efficient regional marketing mechanism.

In exchange for a portion of the satellite agencies' commissions, Mr. Masiello's in-house staff compiles lists of potential clients that include contacts and potential competitors.

Mr. Masiello will also obtain a quote for a member if that agency does not have access to an insurer in that market.
Mr. McBriarty said the services provided by SAN enable him to do the business of a larger agent.

"With a $2 million business, there's no way I would have 23 (insurance companies) in here" without SAN, he said.
Although the satellites do meet six times a year, disclose financial information to one another and talk informally, most of the communication occurs between Mr. Masiello and the principals of the satellites.

"I don't care what all the other satellites are doing at all. I deal with Jim," said Mr. McBriarty.

But the agents do generally respect one another's territory, according to Mr. McBriarty. "If I know a SAN agent is competing, I won't compete because I wouldn't want that done to me."

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