Insurance Agency Network Agreements: What to Know Before You Sign

For independent insurance agencies, joining a network, also referred to as a cluster, aggregator, or alliance, can be a strategic step toward growth. For agents just starting out, a network can provide a turnkey path to market. These advantages can be valuable — but there can be significant strings attached.

Agency Networks can provide (1) access to carriers, (2) enhanced compensation structures, (3) shared resources and support, and (4) access to peer groups. Network membership has grown over the last decade to the point where a recent study by the Insurance Networks Alliance estimates that roughly 50% of all independent insurance agencies are members of an Agency Network.

With the growth of Agency Networks, you, as an agency owner, have many options. Before jumping into a relationship with a network though, make sure that you fully understand the terms of the relationship, including fees, commission, and profit-sharing splits, operating requirements, and exit restrictions and fees. In some cases, network agreements can inhibit your ability to sell the agency, which will reduce your agency’s value.

Therefore, it’s wise to consider how a network relationship aligns with your short and long-term goals for the business. As the saying goes, “Begin with the end in mind.”  For legal reasons, I’m not going to call out any Agency Network by name, but rather provide guidance on evaluating network agreements in general.

Network Costs, Market Access, and Compensation

When evaluating a potential network, it’s important to carefully review the financial and operational terms of the agreement. These are the terms that will impact your agency the day after the agreement is executed. Some key terms to be aware of include:

Costs: Agency Networks earn revenue through a combination of charging members fees and sharing in commissions and profit-sharing, which are effectively a cost to you as a member. Networks targeting smaller or start-up agencies tend to lean heavier on commission-sharing vs monthly fees (lower fixed cost to the member).  Networks targeting mid-to-larger agencies lean heavier on charging monthly fees and splitting profit-sharing (lower cost in the long run than a commission split).

When assessing a network partnership, weigh the cost-to-value benefit.  A 20% revenue-sharing model may seem palatable early, but gets expensive when you scale; therefore, the split should tier down as your revenue grows.  If you are a larger established agency, the network should be able to assess your revenue enhancement from moving production under its contracts, which you can weigh against the cost of the network’s fees and splits.  Have a good handle on what the affiliation will cost you and what you will receive in return, monetarily, as affiliation with a network should be a net gain to you and produce a measurable ROI.

Carrier Access: Some networks have production requirements that must be met before you get a direct appointment or even subcode with a carrier, which impacts who receives the commission income from business you write, who owns the policies written, and even what agency name is on the customer’s policies.

Some networks also require you to route all business through the network-carrier relationship — even if you already have a direct appointment with that carrier. Make sure you understand how you will be appointed with different carriers and if the network will allow you to pick and choose which carriers you can access through the network.

Income & Reporting: An Agency Network should provide you with clear, regular reports detailing commissions earned and your share of any profit-sharing, contingency, or override bonuses. A few networks also require members to submit financial statements or production reports to the network. The agreement should clearly outline these reporting requirements, along with payment schedules and whether payments are made via ACH or check.

The timing of payments can have a direct impact on your agency’s cash flow. If the network cannot offer you direct carrier appointments, then commissions will flow through the network first, which can add to the delay of your agency getting paid on new business.

Beware the Exit Clauses

Most agency principals enter into a network affiliation early in the agency’s evolution or at a point when they have a compelling reason to join, such as after losing a carrier appointment.  As such, they don’t often read the network agreement from a long-term perspective.  The trouble arises when they look to exit the relationship.  At that point, terms that were overlooked when the agreement was signed can jump off the page and knock you out of your chair.  Some key clauses to be wary of in an Agency Network agreement:

Notice & Consent Requirements: Most network agreements include a notice requirement when a member seeks to sell their agency and a consent requirement if the member wishes to transfer/sell the agency. In many cases, failure to notify the network of a sale/transfer and obtain consent can trigger a termination and financial penalty.

Exit Process: Some networks treat the sale of an agency as a contractual breach, triggering immediate termination of the agreement. This can result in the loss of carrier access and the forfeiture of future commission rights on business written under the network’s appointments. Others impose a run-off period after termination, during which the departing agency must continue to pay fees or share commissions with the network until the book of business is fully transitioned. In other cases, the network prohibits the blanket transfer of carrier subcodes, requiring the agency—or its buyer—to manually rewrite or reassign each policy, significantly complicating the post-sale transition process.

Post-Termination Restrictions: Some network agreements prohibit exiting members from obtaining direct appointments with carriers.  Some agreements even prohibit exiting members from soliciting agency clients post-termination.

Exit Fees: Some networks charge a break-up fee if you seek to exit the relationship, often defined as a deferred or termination payment.

Right of First Refusal (ROFR): Some network agreements include a Right of First Refusal to buy your agency.  While a ROFR may seem reasonable, particularly if the requirement is to pay higher than an offer you receive, the inclusion of a ROFR diminishes your agency’s value.  Why?  The ROFR triggers when you have an offer in hand.  The network is then allowed a certain period of time (e.g., 30 days) to decide if they want to buy the agency.  The problem is that most large acquirers will not pursue acquiring agencies that are members of networks that have a ROFR because they know it’s a waste of time.  Fewer buyers = lower value and fewer (or no) offers to leverage a higher price from the network.  By adding a ROFR to the agreement, the network is intentionally creating a captive market for itself where it can buy agencies below market value.

How to Mitigate the Risks

If you’re thinking about joining an Agency Network, here are the steps to take to protect yourself from picking the wrong one:

1. Shop Around: Speak to multiple Agency Networks. See the Insurance Networks Alliance directory.
2. Evaluate & Compare: Use our Agency Network Question List to ensure that you are asking the right questions and understand what you are agreeing to.
3. Get Legal Advice: Consult an attorney familiar with network agreements. Contact us if you need a resource.
4. Negotiate: The time to negotiate the terms and exit fees is before you enter an agreement, not when you are trying to exit it.  Know what you can and cannot accept and be willing to walk away – there are dozens of Agency Networks in the marketplace.

Conclusion

While insurance networks can offer valuable benefits, not all networks and their agreements are created equal. Some networks offer flexible terms and minimal exit restrictions, while others are more costly or can reduce the value of your agency once you sign an agreement. By thoroughly reviewing agreement terms, understanding potential implications for business growth, and asking key questions about ownership rights and operational requirements, agencies can make informed decisions that align with both their current needs and future goals.  Remember, begin with the end in mind.