An aggregator, according to our definition, is an entity that "clusters" distribution entities together to achieve economies of scale, without assuming the autonomy or ownership from the individual owners. Consolidators and acquirers take over ownership. Aggregators may take a share, but leave the predominant ownership with the individual agencies.
Insurance distribution is changing. Over the years insurers have demanded more and more from agents, and in recent years they have demanded higher and higher volumes to access benefits such as profit sharing and incentives. I think we could all engage in the argument about whether "big" distribution or "small" distribution is better. The answer would depend on from whose standpoint you are viewing the question. If you look at it from the insurance company side, they want as many distribution points as possible and they want to limit the necessity to interact with distribution to as few points as possible. Somewhat conflicting objectives from my view.
Recently, I was asked by Independent Insurance Agents and Brokers of America (IIABA) to examine "clustering" of "aggregation" and write a report on my view of such entities. As I undertook the review I realized several trends, and I realized how prevalent agency aggregation has become. I reviewed the history of aggregation and tracked the evolution of the phenomenon of "aggregation" and found several distinct types of aggregators. I outlined the types, how they have evolved, and endeavored to compare the differences. Then, in conjunction with Peter van Aartrijk, a fellow VU faculty member, I developed a critical analysis to evaluate different aggregators and aggregator contracts. The result was a white paper that explains the types of aggregators, the types of contracts and a matrix to evaluate whether you should consider this option. This article provides highlights from that paper.
What is an "Aggregator?
An aggregator, according to our definition, is an entity that "clusters" distribution entities together to achieve economies of scale, without assuming the autonomy or ownership from the individual owners. Consolidators and acquirers take over ownership. Aggregators may take a share, but leave the predominant ownership with the individual agencies.
What are the types of aggregators and how have they evolved?
In my opinion, the first aggregators were either wholesalers or franchisers. Agency franchises such as USI appeared years ago and were the early entrants to the insurance business. I call this early generation "AFO's" Agency Franchise Organizations.
The next aggregators marked in the evolution are what I call MACs or Market Access Cooperatives. These organizations primarily, in one way or another, provide access to insurance companies and access to profit sharing.
The next aggregator evolution is what I call APOs or Agency Platform Organizations. APOs provide the markets, the automation and support platforms for the agencies without asking to take all the ownership.
The latest aggregator evolution is the emergence of MAO's or Managed Agency Organizations. MAOs take over management of the agencies in a central location, but allow the individual owners to retain ownership.
Is this a growing trend?
I was surprised to find how many of the list of the top 100 brokers are aggregators of one sort or another. The increasing pressure to grow or be sacrificed has allowed these types of organizations to proliferate and become a much more accepted and mainstream part of the insurance industry.
Should you "follow the trend?"
The white paper provides an outline of the factors to be evaluated and a matrix to help you decide—objectively, which is critically important—if you should join forces with others in a "cluster". It allows you to analyze the salient information and make intelligent decisions based on the known differences. If you decide to become part of a cluster, the benefits can be increased and more consistent profit sharing, management assistance, automation assistance, insurance and risk management assistance and increased access to many insurance markets.
Conversely, if you decide to maintain your status as an individual agency, you enjoy the benefit/s of autonomy, exclusive management control, direct relationships with insurers and other benefits of entrepreneurship. With either course, it is not a decision to be taken lightly or without thoughtful consideration and, perhaps, professional advice. But, for some, the industry changes are welcome and have proven beneficial in not only saving their agencies, but in growing them.
How do you decide?
You will find in this white paper factors to consider relating to:
So...If you want to know more, or just want information, this is a must read for every insurance agent!
To download the complete guide, click here.