Excerpt fromThe Forum
A Publication of Independent Insurance Agents
Association of New York, Inc.
July 1998 Issue

By G. Edward Kalbaugh
Harbor Capital Advisors, Inc.

Last year we discussed alternatives to buying or selling or merging. One of the more interesting alternatives discussed was SIAA, the National Insurance Agency Alliance. In this article, we'd like to update you regarding SIAA and introduce you to some agencies that have taken advantage of this opportunity.
SIAA is the outgrowth of the Satellite Agency Network Group (SAN Group) formed in New England by James Masiello in 1983. Agency networking "best practices" created and refined by SAN Group over 15 years were replicated to create SIAA, the national equivalent of SAN.

Essentially, SIAA is an equity-sharing, tiered distribution system whereby a large retail agency (10-30 employees) forms a separate business entity, called a "Master Agency", which operates as a wholesale unit for smaller agencies (1-9 employees), called "Satellite Agencies". The Master Agency has an equity position in, and receives a percentage of commission income on all business generated by the Satellite Agency from the time of their agreement. SIAA has an equity position in, and receives a percentage of all revenue generated by the Master Agency. In addition, the Master Agency earns a vested interest in SIAA, the national network.

Master Agencies pay a fee to SIAA for appointment to specifically defined and protected geographic territories from which the Master Agencies recruit Satellites. Each Master Agency enters into a long term contract with SIAA, and Satellite Agencies enter into long term contracts with their respective Master Agencies. The contracts cover performance and relationship requirements, including production quality and minimums and buy-sell options and requirements.

SIAA has established Strategic Business Units (SBUs), headed by regional presidents that represent SIAA in specifically defined geographic territories. The SBU selects, appoints and trains the Master Agency. Currently there are eight SBUs designated to cover specific states.

Experience has shown that insurance company marketing and underwriting staff provide a high number of quality Satellite prospects to the Master Agency. SIAA supplements company leads by identifying, selecting and qualifying Satellite prospects and making appointments for the Master Agency. At the Master Agency's option, this service from SIAA may be continued for longer periods.

Currently, the SIAA consists of 25 Master Agencies comprising 79 territories and approaching 200 Satellite Agencies in 31 states generating over $750 million of profitable premium (less than 50 percent loss ratio) with 740 insurance companies. Premium volume with one company is in excess of $25 million and several others in excess of $10 million. Accordingly, insurance companies are continuing to partner strategically with SIAA as it grows the network nationally.

In addition, financial institutions are considering SIAA as a vehicle to penetrate the insurance business. Interest from financial institutions includes making capital investments, acquiring Master Agencies and using branches as Satellite Agencies.

SIAA's business model is well under way to appoint 239 Master Agencies comprising 373 territories with approximately 25 to 35 satellites each by the end of 2004. This will result in a national network of 10,096 independent agencies in 50 states generating $30 billion in premium with more than 750 insurance companies.

For Tom Frey, President of The Landmark Planning Group, an independent agency in Floral Park, New York, SIAA was an answer to the dilemma posed last year, "How to grow the agency without buying, selling, merging or acquiring producers?"

After months of due diligence, Tom and his partner Bob Henken decided to join SIAA to create their own Master Agency, the "Insurance Agents Alliance of Long Island" (IAALI). According to Tom, "SIAA provides the best win-win arrangement for large and small agencies to profitably grow while remaining independent and relatively safe from industry contraction."

Although somewhat anxious at first about the reception from local small agencies, Tom and Bob were overwhelmed at a recent association conference, where they received over 150 inquiries concerning IAALI.

Shortly thereafter, The Valentine Agency of Mineola joined IAALI as the first Satellite Agency. Owned by A. Robbins Valentine, Jr., The Valentine Agency is a third generation agency employing six people and representing GA, CNA and Merchants. In addition, The Valentine Agency now has access to over 14 companies represented by IAALI. According to Valentine, "IAALI addressed all my concerns including access to markets at full commission, perpetuation, sales support and any other help I needed."

SIAA holds two conferences each year in Hilton Head, South Carolina, where Master Agencies and selected Master Agency prospects get together to discuss ways to improve the network. These are "bottom up" meetings essentially run by members to initiate improvements within the network, including new relationships and agreements with insurance carriers on new products, profit sharing contingencies, excess compensation and other issues, as well as improvements in growing the network.

It was at one of these meetings, that Mark and Chuck Rollins, Chairman and CEO and President respectively of The Rollins Agency in Tuckahoe, New York, decided that SIAA was one of the keys in their agency's strategic plan. As owners of one of the largest agencies in the Hudson Valley ($4.5 million revenue), both Mark and Chuck believe strongly in sharing their knowledge to help smaller independent agencies grow and prosper. They are active members in community, industry and agency associations and have even developed agency relationships in over six countries to facilitate insurance coverage for international clients.

According to Mark Rollins, "SIAA is the perfect way for The Rollins Agency to partner with smaller independent agencies and help them grow their business while they remain independent. We can give them access to just about any market they need, bring them profit sharing without any premium commitment, and help them write any account no matter what size or complexity."

Is SIAA the right answer for all agencies? Of course not. But for larger agencies that don't want to acquire or merge or hire additional producers, becoming a Master Agency should certainly be high on the list of options to consider. And if you're a small agency with little or not profit sharing and only a few markets, but a lot of pressure to write more to keep them, then you should consider aligning with a Master Agency under SIAA. In the direction they're moving, SIAA may soon be one of the biggest independent networks in the U.S.

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