How can networks benefit independent agents, carriers
Competitive pressures, increased capital availability (even with current rates), and the evolving business landscape (thanks in part to the pandemic) have created an opportunity for independent insurance agents (IAs) to get creative to grow and remain independent in the insurance industry.
As such, many IAs have sought out agency networks and associations that provide benefits historically harder to come by as a standalone business or agency.
Simply put, networks help bridge the gap created by these factors for agents that want to be competitive while remaining independent. Many networks offer different capabilities (e.g., marketing, training, technology) and provide access to increased compensation (through pooling premiums to overcome entry gates for increased base and variable compensation) in exchange for a fee. This structure allows small and mid-sized IAs to compete on a more level playing field with larger standalone agencies and agency roll-ups.
Furthermore, network structures have offered a compelling alternative for exclusive agents (EAs) to get the best of both worlds – they are able to get choice of carriers while also receiving the business and operational support they need from their network. This has provided an alternative for historical EA talent increasing the pool of viable IAs reinforcing the value networks are adding.
These advantages mean networks are only growing in popularity. There are nearly 40,000 independent agencies in the United States as of 2022, an increase of 4,000 from 2020. It is not surprising to us, given 2/3 of agencies have <$500k in revenue and could reap benefits from joining other agencies beyond financial measures, that a super majority of agencies are in an agency network. Our survey of 500 IAs across the U.S. shows that over 70% of agencies participate in one of the approximately 150 networks.
Agency networks and associations can have material benefits for agencies and carriers, but how should carriers respond to this new distribution reality and what does this rapid expansion of networks and their growing power in the marketplace mean for the industry?
Agency networks
While networks have been largely positive for IAs, they have caused an increase in the total cost of distribution for carriers who are paying more, in some cases, for business they already had on the books. To manage profitability, carriers must look at ways to maximize their own benefits from agency networks. We believe carriers can start with the four levers below:
1. Create compensation plans that benefit both partners
To maximize the scale of networks and avoid overpaying for performance not aligned to the carrier’s goals, carriers can create simple and clear base & variable compensation programs for agencies that drive desired agency behavior.
For example:
Connect increases in network access fees (overrides) to increases in mutually beneficial outcomes for a pay-for-performance approach.Require the network to provide the producing agencies within the network with a portion of the access fee (override)—not just the variable compensation or profit share commission.
2. Address the skill and technology gaps
Agencies need support to develop skills and technology that are critical for their business. While networks fill some of the gaps, carriers should consider creating partnerships in which agencies can use technology and non-carrier specific systems to improve efficiency.
For example:
Digital marketing training for employeesSelf-service client capabilities that reduce operational workloadUse of generative AI to quickly and accurately respond to an agency’s request the first time without bouncing an agency and its staff from person-to-person to get different answers
3. Complement, don’t replicate
There are hundreds of agency networks vying to provide capabilities and benefits to the 40,000+ IA market. Carriers should consider the capabilities provided to agents by the network and where the carrier can fill the gap. This requires understanding the networks that are most influential in the carrier’s distribution strategy and what they provide to their agencies. Carriers can then take a deeper look at where they can step in to complement the network’s capabilities.
4. Pick winners and partner
Because networks can be used as a meaningful path for growth in the context of a broader distribution strategy, carriers should identify the set of networks that can support their business objectives. Furthermore, developing an engagement model suited to that network partner and aligning on how they will jointly provide for agency needs will be crucial steps for success.
Agency networks are a force within insurance distribution that is big and getting bigger. These networks provide tangible benefits to agencies that help them meet their goals and address challenges. Carriers are already partnering with these networks today, and by acknowledging how carriers can complement networks, carriers can use agency networks as a meaningful lever to achieve their objectives, in service of their broader total enterprise re-invention.
