History of Michigan Agency Alliance
The Michigan Agency Alliance was founded in 2004 by representatives of Barrett & Associates, Berkfield & Co, and Vollrath Insurance Services. The Alliance was the direct result of a series of discussions among the group and Mark Barrett's personal experience with a similar group in the State of Washington. The group collaborated on a White Paper to organize their thoughts and present the case for the formation of the Alliance.
Michigan Agency Alliance LLC
The insurance distribution system has several types of delivery models, one of which is the small to mid-size referral agency. Referrals come to these agents because they have close client contact and are good at identifying and meeting customer needs. These characteristics are attractive to the insurance companies they represent, but this model does not always deliver the volume that is required by some companies for either contingent commission or continued representation.
The typical agency in this model has a high retention level, is profitable, and grows through referrals. They will have one or two core companies where they have substantial volume, and another group of quality companies which would prefer that their volume be higher. These agencies typically have long term and profitable relationships with their core companies. They are active in the community, participate in their local governments and churches, and are part of the fabric of the area they represent. The only problem they have is satisfying the volume needs of their non-core companies.
These agents have several options to obtain this additional volume. Mergers and clusters are not good options, as they often create more problems than they solve. Agents like their independence, carriers do not like clusters, and mergers carry no guarantee that all of the carriers represented will approve. This can result in customer displacement and worse.
The small to mid-size referral agency is an important part of the insurance distribution system and needs to find ways to retain carrier contracts, earn contingent commissions and take full advantage of the referral opportunities that they generate. The Marketing Alliance is a concept that will accomplish this.
The Marketing Alliance is neither a merger nor a cluster, nor a for-profit market brokering operation. Each agency involved continues to run their own completely autonomous agency at their own location. Carriers that these agencies represent are invited to participate in the Alliance, but there is no requirement that they do so. Agency involvement in the Alliance does not change in any way the existing carrier/agent relationship if a carrier chooses not to participate. In addition, no carrier will be forced to appoint all agents. We recognize why it is important for member carriers to preserve their right to appoint.
Here's how the Marketing Alliance works. A group of agents with similar concerns, size, issues and carrier representations agree to enter into an Alliance agreement. Participating agent members will be selected based on mutual compatibility, interests and operating philosophies. The Alliance will be a separate entity with no employees and will exist on paper only. Each agent will invest a fixed sum of money and will own a share of the Alliance. Members have an equal vote, regardless of their size. Insurance carriers and brokers will be invited to join the Alliance and asked to amend their contract from the individual agents to the Alliance, with the original agents as sub-producers. Direct bill commission checks and account current items will continue to be adjudicated directly through each sub-producer-member of the alliance. The only financial transactions for the Alliance will be dues and possible contingent commission checks earned by the combined production of the participating agencies.
The new model referral agency now has a core of primary carriers plus a Marketing Alliance for the carriers that see the importance and value of participating in the Alliance. The volume commitments of the carriers participating in the Alliance will be met by the combined business of the Alliance members. Contingent commissions will be paid to the members based on their individual percentage of the total volume.
The result is a triple-win solution to a common problem. Carriers who want to continue valued relationships are able to do so, member agents will be able to continue the same valued relationships and obtain access to markets not otherwise available to them, and customers will not run the risk of market displacement due to the loss of an agent - company relationship.
Mergers and clusters create a dynamic that is not comfortable for insurance carriers for several reasons. The Marketing Alliance allows the appointed carriers to keep the best part of their current relationship. The Marketing Alliance does not require a carrier to participate, and the members recognize that there are several valid reasons for reluctance to participation. The Marketing Alliance allows agent members to continue operating without having to consider a merger or sale.
The primary goal of the Marketing Alliance is to retain carrier/agent relationships, provide new market access to Alliance members, and assure mutual profitability. There are other considerations that may make the Alliance more valuable in the future including agency perpetuation, expense reduction through discount purchasing group programs, inter agency networking and the operation of a premium finance company. We are currently exploring formalizing mutual aid relationships for catastrophic loss of or damage to a primary location and loss of key personnel.
The Marketing Alliance represents a new way to do business in the changing referral agency environment. The benefits are great enough that the concept deserves consideration by potential appointing companies and member agencies. Through experience we have learned that the a typical Alliance member has the following characteristics:
- They have one to three principals
- They have one to three “Key” carrier relationships with a long record of profitability
- They have a good reputation with carriers, clients and other business contacts
- Their agency writes between $2,000,000 and $20,000,000 of Property and Casualty insurance premium
- Their Agency operation has been built on referrals and relationships
- They have a desire, interest and ability to work closely with the existing Alliance members