NETWORKS: BEFORE YOU SIGN ON THE DOTTED LINE
Nine critical things to know before signing a network contract
Be sure to carefully explore your options and read every word before signing a contract.
… Contract terms vary widely between networks.
By Ashley Wingate
No one likes getting stuck in a bad contract—but it’s so much worse when that contract threatens your career and your livelihood. Unfortunately, this is exactly the situation that independent agents and agencies can find themselves in if they join a network without reading the contract carefully.
While there are many good reasons to join a network, failing to do your due diligence by comparing the different aggregators, clusters and network contracts can mean that you will be unpleasantly surprised as you begin writing through them.
Don’t let your contract surprise you. Here’s what you need to look for before you sign on the dotted line.
- How long is the contract? One of the first things to look at is the length of the contract. Are you entering the agreement for one year, two years or for the rest of your career? If the contract has a one-year term, see if it renews automatically. This isn’t necessarily a bad thing, but you want to be aware of the terms. What if you want to walk away? Will it cost you anything?
- What fees are involved? When you’re trying to build your business, anything that increases your overhead can undermine your success. Network contracts may include joining fees, monthly fees or both. Before you agree to pay these fees, make sure you’ll be getting your money’s worth. Also, watch out for lots of small fees that don’t look bad on their own but really add up over the course of a year or several years. Is there a threshold at which your fees will diminish or fade out?
- How much commission will you earn? In addition to fees, you should look carefully at the commission structure. Is there a universal commission split, or does the split depend on certain factors like business volume, tenure, etc.? If so, what are those factors?
- Many agents tend to focus on the commission split percentage, and this is understandable. The com-mission you earn determines your agency’s financial growth and future! But remember, don’t let an attractive commission structure on the surface lure you into an agreement that comes with unreasonable fees or is otherwise harmful to your long-term financial position.
- Will the network share carrier bonuses? As you consider your potential earnings, be sure to factor in carrier bonuses and contingency payouts. Some network contracts provide for bonus sharing, while others do not. Everyone likes to be rewarded for their success, and bonus sharing can be very lucrative, especially from the position of combined premium from a network. So, find out whether this opportunity will be available to your agency and the stipulations involved.
- When will you be paid? Cash flow can be an issue for independent agents and agencies. When you get paid can be as important as how much you get paid. Find out what the commission payment schedule is and make sure it’s one you can work with. Will it be once a month? Twice a month?
- Are there production requirements? Some network contracts have higher production requirements than others. If you’re trying to grow your business—and let’s face it, that’s why you’re interested in joining a network in the first place—these requirements may be a barrier. A good agency network should be able to negotiate lower production requirements with carrier partners. Make sure you can hold up your end of the contract.
- Who owns the business you write? This is a big one. You’ve worked hard to build your book of business and your own independent agency. Are you willing to give an agency network an ownership stake in your own agency?
- Some networks take an equity position in your agency. This can have a significant impact on the future of your business. Understand these terms carefully before signing away your independence, revenue, and legacy.
- Is there an “exclusivity” clause? You may want to use an agency network to place some of your business but not all of it. This can help you expand your business while maximizing your profits—but watch out. Some networks require exclusivity. Depending on the terms of the contract, you may have to fork over a share of your commission for everything you write, even if it’s business written with a carrier you had in place before joining the network.
- What happens if you leave the network? When you join an agency group, you no doubt hope that it will be a long and mutually beneficial relationship. However, at some point, you may want out of the agreement. Check the contract for details regarding how you can terminate the relationship.
Specifically, find out if termination will require a buy-out agreement. This may be the case for networks that take an equity position in your agency.
The devil is in the details
When it comes to network contracts, the devil is in the details. Be sure to carefully explore your options and read every word before signing a contract. If there are fees or clauses that don’t feel right to you, look for another option. Contract terms vary widely between networks. Shop around and make an informed business decision.
Ashley Wingate is the senior vice president of sales at Smart Choice®. Ashley previously served as vice president, personal lines from 2015 to 2018. He oversees the expanding markets and growth for all carriers and products. Ashley began his career with Smart Choice in 2005 as a territory manager in North Carolina.