The insurance industry has seen a rise in competitive pressure, increased capital availability, and an evolving business landscape, which has created an opportunity for independent insurance agents (IAs) to make use of agency networks. These networks offer benefits that were traditionally harder to come by as a standalone business. For carriers, understanding the role and importance of agency networks is crucial for using this distribution structure effectively. Our topics will explore why agencies join and switch networks, the benefits of agency network participation, and how carriers should respond to this growing trend.
The competitive pressure and increased capital availability have led many agencies to seek out networks. Despite predictions of the “death” of the agent, IAs remain the dominant channel, especially in commercial lines. However, several forces are continuing to impact this channel, including private equity investment, changes in the work environment, competition for talent, and the digitalization of prospecting. These factors have changed the playing field and shifted engagement models across the industry.
Agency networks help bridge the gap created by these factors, allowing agents to be competitive while remaining independent. Many networks offer different capabilities and provide access to increased compensation in exchange for a fee. This structure enables small and mid-sized IAs to compete with larger standalone agencies and agency roll-ups. The advantages of network participation have made them increasingly popular, with a majority of agencies participating in one of the approximately 150 networks.
While the rise of agency networks is largely positive for IAs, there is a high cost for carriers. Engaging with networks requires carriers to have a deeper understanding of key IA challenges and why they are joining networks. A common misconception is that IAs join networks only to increase revenue. In reality, networks offer additional benefits beyond revenue and can be valuable to carriers as well.
For IAs, the challenges of standalone agencies are becoming exacerbated by operational demands, resulting in skill, scale, scope, and capital challenges. Agency networks offer a valuable option to address these challenges and goals. Our research found that networks delivered on three primary objectives: building talent, accessing additional marketing capabilities, and increasing carrier access and breadth.
In conclusion, the rise of agency networks presents a significant opportunity for IAs to remain independent and competitive in the insurance industry. As carriers seek to understand the role of agency networks and why they are important, they must also consider the benefits and costs of engaging with networks and make strategic choices for the future.
