Aggregate/Cluster offer - Thoughts?

[Taylorins]

Been on the captive side of P&C for the past 9 years, roles varying between sales, office manager, & agency owner. Thinking of going independent route and spoke to an associate who now owns an independent. They offer aggregator style partnership. Access to 6 top carriers in NYS, phone system, CRM, and all customer service handled by their primary location. My only task would be to sell p&c which I have done for nearly a decade.

Wanted opinions on their compensation structure. $5k startup fee, 80/20 split on new business (80% mine), 50/50 split on renewals. Sale of agency would be 70/30 (70 mine). Just wanted to see if anyone has gone this route or has seen something similar.

 

[marindependent]

First Question would be would your rather have 80/20 and service the clients or yield to 50/50 and have no servicing yourself?

Why do you only get 70? on the sale?

Lastly what is your marketing plan when you no longer are captive?

 

[Al3x Lee]

It's good to see someone with some experience and know-how on the forums. It amazes me how many people with 0 insurance experience want to start an agency on these forums.

I agree with marindependent, I think we need some more details

 

[Taylorins]

First Question would be would your rather have 80/20 and service the clients or yield to 50/50 and have no servicing yourself?

Why do you only get 70? on the sale?

Lastly what is your marketing plan when you no longer are captive?

During my licensed sales role I had finished as a top producer in the state for 2 years, averaging around $50k premium a month in P&C based solely off of internet leads. If I do decide to go independent I would be bringing two others who have same tenure with the captive angency and average around same sales as me. That’s why the non service part is appealing, I’m not naive in thinking we are going to be writing $150k in premium our first month, however once we get our feet wet and have the luxury of multiple carriers I believe we would be writing more than we did on the captive side. We were all working for the largest agency in the state, writing on average 500-600 items a month. It’s all we know how to do; generating new business.

In regards to only getting 70%, I believe it has to do with it being considered a joint venture. We wouldn’t need our own E&O and everything is already set up through their preferred contracts.

In regards to marketing strategy, we’ve only known internet leads and having in house telemarketing dialing those leads which are state wide, we sell the entire state, not just our area.

 

[Taylorins]

It's good to see someone with some experience and know-how on the forums. It amazes me how many people with 0 insurance experience want to start an agency on these forums.

I agree with marindependent, I think we need some more details

Appreciate the response! I replied above

 

[shawnmwalker]

Why do 50/50 split when you can do a service center for 1%. I think id take and 80/20, 85/15 or 90/10 split on new and renewal and get 100% ownership. Too much to cover here.

 

[Taylorins]

Why do 50/50 split when you can do a service center for 1%. I think id take and 80/20, 85/15 or 90/10 split on new and renewal and get 100% ownership. Too much to cover here.

Do you mean an external service center service?

 

[AZDave]

80/20 split on new business (80% mine), 50/50 split on renewals. Sale of agency would be 70/30 (70 mine).

Who has the ownership, or is that where the 70/30 comes in? Full binding authority?

80/50 with zero service work is good, especially 50 renewals for zero work. If you remarket and place you then get 80?

NYS = New York State? A tough market, and direct access to those Carriers would be ideal.

Seems you have the lead generation figured out for the auto/home which is unfortunately becoming more and more a commodity purchase.

 

[Taylorins]

Who has the ownership, or is that where the 70/30 comes in? Full binding authority?

80/50 with zero service work is good, especially 50 renewals for zero work. If you remarket and place you then get 80?

NYS = New York State? A tough market, and direct access to those Carriers would be ideal.

Seems you have the lead generation figured out for the auto/home which is unfortunately becoming more and more a commodity purchase.

That’s where the 70/30 comes into play & yes I would have full binding authority.

Honestly, I’m not sure how the re-market is structured and is something I need to figure out.

Yes, New York state. Extremely difficult market especially for captive right now lol.

 

[MichaelRS]

Wanted opinions on their compensation structure. $5k startup fee, 80/20 split on new business (80% mine), 50/50 split on renewals. Sale of agency would be 70/30 (70 mine). Just wanted to see if anyone has gone this route or has seen something similar.

Honestly, the numbers seem fine up front, BUT that's only OK if you are a brand new agency. What you are essentially doing is buying a job. If that is what you are looking for, great, you'll get a decent cut and only be on the hook for bringing in new business. But, you could do that at a number of insurance agencies. The benefit of owning an agency is building up an asset and, possibly, a team along the way. The more important thing is look at the numbers say 5 years down the road. See the attached spreadsheet.

First 5yr commissions going with the 80/20 and 50/50 aggregator is $309,250 and an agency value of $77,438 (25% of five year commissions-just a base metric for comparison). The second option takes into account a lower split at 60/40 for the first three years and a 100% for the final two, if you go with an aggregator that lets you get direct appointments and full commissions. All are based on 90% retention and a 10% average commission, both of which would be an average agency (you should be able to do better like 92% retention and 11.5% average commission which would greatly increase you commission and agency value).
Anyway, after five years, you've banked $502,050 in commissions and the agency value is $181,250.

So, the decisions made up-front could be the difference of $296,613 over five years in commissions and agency value. My 60/40 split and 10% avg commission considered service center for the first three years. So, seems to make sense going 80/20 and 50/50 but if you are in this for the long haul, choosing an option like that is just giving money to others. And this is just considering a ~$1.5M agency at the end of five years, which isn't much. What if you doubled to $3M or to $6M. The amount you lose is very substantial and results from decisions made years prior. You may make a change in year three, but always better to negotiate the best up front and then put in all the effort. Sucks having to revisit stuff like this when you are busy to begin with.

There are a couple of important things to consider, which I considered when I went independent. 1) Your agency's value is going to be a percentage of your five year commissions or, more typically, your profit times five. If you are giving away commissions, that naturally decreases your agency's value. 2) You will be limited on who you can sell to, because, if they are not an established agency, they will have to contract with your aggregator. Something they may not want to do. Owning your appointments is a huge thing and should not be underestimated.

Hope something is helpful to you.

P.S. None of these calcs took into account contingencies which could add many more thousands to your commissions and valuation.