SIAA's Master Agencies offer attractive benefits
to member firms during current market conditions
By Phil Zinkewicz
Twenty years ago, in the early 1980s, the property and casualty insurance marketplace was a free-for-all. Those were the days of soaring interest rates and high investment returns. They were also the days when insurance companies forgot they were in the insurance business. "Cash flow underwriting" was the term used to describe the insanity that rocked the business of insurance. Insurers were writing coverages at rates so low that they were practically giving them away, all for the purpose of attracting premium dollars to invest. Publicly, insurance executives were decrying the soft market that existed, but privately they were telling their people to bring in any and all business to take advantage of high investment yields.
Then the bottom fell out. Investment returns dropped dramatically and insurers were left with books of business that could not support their operating costs. The result was that underwriting losses began to surge--with 1984 and 1985 becoming dismal years for independent insurance agents as they watched capital disappear from the insurance industry and markets dry up.
Just two years prior to that hard market one man came up with an idea. Recognizing that the insurance industry was changing dramatically and wanting to grow his agency, he created the SAN Group, calling it a "Master Agency." He put out the word to smaller agencies--which did not have the markets they needed to grow--that SAN and all its capabilities, including markets and technologies, were available to them. Today, SAN Group has more than 130 member agencies and writes in excess of $165 million in premiums.
"That man" is James Masiello, who is now chief executive officer of the SIAA (Strategic Insurance Agents Alliance). In 1994, with the encouragement of several company executives, SIAA began replicating the success of SAN throughout the United States. SIAA, based in Swanzey, New Hampshire, currently operates in 48 states and represents more than $2 billion in premium volume through a network of more than 800 independent agencies.
Moreover, according to Masiello, with today's hard market, which has the potential to duplicate if not surpass the hard market of the mid-'80s, the association is seeing more agents wanting to become members of SIAA's Master Agencies.
"The market began to harden in the year 2000--about 18 months ago," says Masiello. "We all saw it coming. It was no secret. Just as in the years prior to 1984-85, there were too many years of companies chasing after premium dollars for investment purposes. Rates were going down into the tank. The industry began to realize that you just can't keep giving the store away. So the market began to harden, but slowly. Then came the horror of September 11. The industry has been hit hard. Rates are going up dramatically and markets are retrenching. For the smaller agency, the SIAA approach is beginning to look even better than it did before. We are adding at least one new member agent every working day."
But Masiello says that even in soft market conditions small agencies can benefit from joining SIAA. "Our approach allows small agencies, which I describe as those with between one and nine employees, to join larger regional agencies who become strategic Master Agencies that establish a high-income, low-expense profit center. The master agency can grow without the additional costs of adding producers or opening branches. They get access to national and regional override and enhanced commission programs. They can replicate the success of a 15-year Master Agency program, which generates revenue per employee in excess of $182,000. And, we offer training, marketing support and contracts, which saves R&D expense."
Masiello points out that, in addition to accessing certain markets and niche programs for the first time, smaller member agents can compete with larger agencies, earn profit sharing with no minimum volumes, and obtain direct company appointments as well as share in company override, bonus and growth programs. "They become part of a $1.77 billion network of successful agencies," he says.
The program is also open to captive agents who are tired of walking away from commissions because they cannot write particular lines of business and to agents who have their licenses but who are not ready to open their own insurance agency.
Here's how the program operates: SIAA looks for larger agencies that might qualify as a Master Agency. The search is done geographically. "When we find an agency that likes what we bring to the table and we like what they bring, the deal is struck," says Masiello. "We provide the prospects, which could number four or five hundred. About 10% of those prospects will become agent members. That's what our Master Agencies have been averaging, although in New Hampshire we have been averaging about 22%.
"The independent strategic agency that joins a Master Agency pays a nominal admission fee, but the Master Agency gets paid based only on the growth of that independent strategic agency," continues Masiello. "Our numbers represent more than 800 companies and we have strong relationships with the major players such as The Hartford and Travelers."
Masiello says that this is particularly important in hard market times. "When companies retrench, a whole series of things take place. A lot of business moves into the surplus lines arena. And, in terms of retaining agents, companies begin to demand certain volume levels which smaller agents can't put together. They may begin to lose appointments or be unable to pick up new ones. Our goal is to create growth in agencies, while allowing them to maintain their independence."
Masiello explains why the SIAA approach is good for small agents even in a soft market. "There are a good many regions around the country where large agencies dominate. Very often, they will block small agencies from growth opportunities. A large agency that gives a company a lot of business may say to the company: 'Why are you using that smaller agency when we are producing a large book for you?' The small agent loses out. But as a member of a Master Agency, the small agent has the clout needed to grow."
Nevertheless, we're not in a soft market right now, but a very hard one. Masiello expresses confidence that this hard market can only mean that more member agents will want to join the SIAA program. *
For more information:
Web site: www.siaa.net