If you are considering an insurance agency cluster, read on to learn about the types of costs associated with group membership.
In the insurance industry, agency cluster groups (also known as alliances, networks, and aggregators) are formal associations of insurance agencies established to provide “members” with mutual support and group benefits. There can be a lot of great support that comes from joining a cluster, but it comes with a cost.
Most agency clusters have some type of membership fees associated with joining and staying affiliated with the parent group. There are varying levels and types of fees, depending on the organization.
Before you select an insurance cluster for your agency, it is important to understand what types of fees to look for, so you know which questions to ask during the research process.
Fees Associated With Joining an Insurance Cluster or Network
When it comes to fees associated with joining a cluster, there are many combinations of possible fees, with each organization being unique. While you can get a pretty good idea of what fees most clusters typically charge, it's important to note that some charge a lot of fees, while others charge almost none. The number and types of fees, along with the amount of those fees, can really vary between insurance clusters.
The top types of fees you should watch out for include:
- Joining or Initiation Fee
- Monthly or Annual Fees
- Commission Fees
- Equity Interest
- Franchise Fees
Most networks or clusters require an initiation fee and then an annual or monthly fee. Initiation fees can range from a few thousand dollars to tens of thousands of dollars. Monthly and annual fees run from less than $100 to over $200 per month.
After the initial sign-up fee is paid, you may also be required to pay a certain commission percentage of all policies written. Some clusters charge a monthly fee and require smaller commission percentages, while others may not have any monthly fees but require a larger percentage payback. Some contracts have fluctuating percentages, depending on the length of membership and type of policy (new or renewal).
Some clusters assume an equity interest in your agency -- meaning they own part of your business. With this type of setup, you may have to buy out their ownership and lose access to the carriers you had placed business with in order to leave the cluster. That's definitely something you want to carefully consider, because losing carrier access could mean losing a lot of your customers who don't want to switch carriers.
Instead of switching to a different carrier and staying with your agency, those customers will switch to a different agent to stay with their carrier. That can really hurt your bottom line, and it could happen on top of having to buy out the cluster's ownership in your agency. Most agencies look to avoid these types of clusters, especially when just starting out.
Lastly, some insurance clusters operate as franchises with franchisee’s paying a one-time franchise licensing fee that can range from a few thousand dollars to tens of thousands of dollars. With some franchise models, there are additional monthly fees based on the total gross premiums written by the franchisee (often with a base minimum).