Excerpted from Best's Review

Independent agents are banding together in recognition that there is greater strength - and profitability - in numbers.

Swanzey, N.H., 05/01 - Diane Wagner was a company person in marketing at insurance firms for 20 years, but she never had the experience of working on the agent side - until now. As vice president of the spanking new South Carolina Agent Network, she is actively prospecting for 50 independent insurance agencies to join the network and benefit from its communal marketing, mentoring and support programs.

"We really believe that this organization is safeguarding the survival of the independent agency system, especially the small agent," Wagner said.

The network that Wagner and partner Benjamin Taylor, president of McNeill-Patterson Insurance, Spartanburg, S.C., have formed is affiliated with the Strategic Independent Agents Alliance, based in Swanzey, N.H. The SIAA claims to be the seventh-largest independent insurance agency in the United States, with aggregated premiums surpassing $1.41 billion.

"SIAA counts 975 agencies in 50 states on its roster, and averages about four new members a week," said Chairman James A. Masiello.

The move by independent agents to band together "is definitely a trend," said Madelyn Flannagan, vice president, education and research, of the Independent Insurance Agents of America Inc. Flannagan said many of the members of her organization, which represents more than 300,000 agents and agency employees nationwide, also belong to SIAA or other networks.

Lately, she noted, the IIAA has been receiving a lot of requests from its smaller agency members for information on "how they can cluster" to gain more clout. "They're still independent, but as part of a group they would gain administrative and marketing help," Flannagan said. "They're looking at more efficiencies, and this provides so many benefits."

Group Advantages
One obvious benefit for new agents is gaining the group's assistance in setting up their first agency office, Flannagan said. Other advantages can include access to previously unattainable markets and niche programs, the opportunity to obtain direct company appointments and a chance to share in the network's profitability. In return, the networks usually ask agents to pay a nominal commission or membership fee or to give up a small stake in their operations.

As many agents see it, joining a network is a way for their independent agencies to grow without orchestrating mergers or acquisitions. Moreover, by participating in these ready-made distribution systems, they can expand their business without having to hire additional personnel, add office space or invest in more technology.

This urge to join forces couldn't come at a better time. In a recent report issued by the Independent Insurance Agents of America, Flannagan and co-author Jeffrey M. Yates, a consultant, write that a "renaissance in the attractiveness and effectiveness" of the independent agency's distribution system is under way.

"We believe independent agents and agents have their best opportunity in decades to increase their portion of the total property/casualty market," the two wrote. As prices firm in commercial and personal lines, agents and agents will be able to deploy more resources to marketing programs to attract new customers in both lines, the report said.

Branding is paying off for independents, Flannagan noted. Unlike captive agents who work for one carrier, independents do business with an array of insurance companies. "People are beginning to understand what an independent agent can do for them in terms of choice," she said.

There were 42,000 independent insurance agencies operating in the United States last year, down form 44,000 that the IIAA counted in its 1996 study, Flannagan said. "There's one big trend - while the agencies are fewer, they are much larger in terms of revenue and the numbers of employees," she said. The IIAA's 2000 study found that 29% of independent agencies were involved in mergers and acquisitions. And 8% said that they had started their businesses within the last five years, Flannagan said.

In SIAA's case, members include smaller local agencies, producers who wanted to own their own agencies, captive agents, life agents who wanted to round out their operations with property/casualty and insurance company employees who wanted to go out on their own.

SIAA is the outgrowth of the Satellite Agency Network Group (SAN Group) that Masiello formed in New England in 1983. When the IIAA developed its Best Practices program to guide independent agents in their business operations, several people involved in that program encouraged Masiello to "take what we were doing in New England and to export it around the country to create other trade networks to show them how to create distribution systems in other places," he said.

The alliance embraces agencies in every state now, Masiello said. "We progressed slowly, intentionally, and now we're not doing that because the foundation's in place and we're rolling," he said.

The SIAA formula is simple: create a distribution system that involves a large retail agency of 10 to 30 employees, called a Master Agency, and which operates as a wholesale unit for smaller agencies, or Independent Strategic Member Agencies, with up to nine employees. "The Master Agency has an equity position in the growth of the strategic member agencies and receives a percentage of commission income on all growth generated by them," Masiello said. SIAA also has an equity position and receives a percentage of all revenue generated by the Master Agency.

"But the vast majority of equity goes into the partnership agency," Masiello said.
Agencies that opt to become strategic partners receive turnkey operations and systems training with the mission of building a regional distribution network like SAN, but in their own territories. "You get the advantage of learning how to do what we have done and that includes the technology, the sales and the recruiting process that's necessary," Masiello said. "When we say turnkey, we are 100% turnkey."

Size Matters
Larger agencies eager to enter a particular market that they can't access on their own can work with SIAA's Opportunities Division, where an opportunities officer helps create national excess compensation programs for growth and profit-ability with some of the best-known carriers, Masiello said.

"Again, it's size," he said. "Size does matter when it comes to the insurance industry, because if we can deliver good, profitable growth to an insurance company, they're willing to pay for it."

In fact, the network's entire concept is growth-oriented, Masiello said. "Everything is based on income and equity appreciation, so you're really talking about commissions, excess compensation, profit-sharing, overrides - that's how we work."

One of the greatest opportunities for independent agents comes from the ever-increasing size of the major agents, Masiello contends. "As they acquire and merge, they're only after big business - not little business," he said. "There's a whole market void that's been created by the amalgamations of really large agencies. They do a fantastic job taking care of national accounts, the very large regional types of exposures."

But a network like SIAA is made up of generalists, he explained. "We're out looking for everything, and there's a tremendous amount of business available to the insurance industry that does not qualify for the big guys. They put standards on their producers where they won't let them bring in an account unless it has a certain commission level. We'll take those accounts even if the premium to our members is what the commission is to a much larger agency, as they are profitable and demanding a lot less in the way of service.

"So we're filling a real void within the marketplace."

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