CAA, an affiliation of 28 Texas agencies, provides broader market access, expense savings, contract enhancements
By Dave Willis
Bill Russell, CIC, (standing) is president of Bill Russell Insurance Agency, Inc., as well as president of Combined Agents of America, LLC. Tom McCorkle (seated) is president of McCorkle Commercial Insurance, and chairman of Combined Agents of America.
Six years ago, a handful of "friendly competitors" in Texas first met to discuss how their agencies could survive and thrive in a competitive marketplace. More than two dozen agencies now operate under an organization that those principals put together over the course of a year or so.
Tom McCorkle and Bill Russell were part of that original group, which ultimately formed Combined Agents of America (CAA), a partnership with a small "p" that lets agents share knowledge and expertise while maintaining their own agency identities.
Tom runs McCorkle Commercial Insurance in San Antonio and is CAA's chairman. Bill, who heads the Austin-based Bill Russell Insurance Agency, is current CAA president. Both started with direct writers in the late 1960s, Tom with Liberty Mutual and Bill with Farmers Insurance. They switched to the independent agency business years later and started their own agencies in the early '80s.
Agents at those 1997 meetings were from mid-sized agencies and were dealing with carriers demanding increased volume commitments or growth targets. The agencies were having a tough time meeting these requirements, many of which were new or altered because of shifting carrier strategy.
Carriers were segmenting business, not only by market size, but by customer niches, as well. Bill recalls, "As they contracted with agents, they would contract each segment." Agencies found it hard to meet the requirements. They wanted to find a way to ensure market access without relinquishing their independence. Tom says they wanted to "partner without actually becoming partners." They succeeded.
"We were able to come up with a method to combine our premium volume without actually merging," Tom says. "Our company is similar to a cluster concept, but it's not a cluster."
Options considered
The agents studied a variety of options. "We talked with one group that had affiliated for reasons similar to ours," according to Tom. "Twenty or thirty of them had gotten together and formed a cluster. They bought an office building and they moved all of their staffs into one office building to save money. The idea was to cut down their expenses.
"They said it went along pretty well for the first couple of months," Tom adds. "But before long, staffers, brought together from different agencies, started bickering over duties and responsibilities. Worse yet, after six months, the principals started their own bickering.
"They were saying, 'I'm doing all the work and not getting paid for it. The salary isn't right. I don't like the way things are going. I don't like the way you part your hair,'" Tom recalls. "After about a year they were arguing about everything, and by the time 18 months had gone by, they had disbanded."
Tom and Bill's group studied another arrangement, in which a large agency would team up with smaller agencies, offering markets in exchange for a percentage of commissions. "We looked at that model and realized the reason that wouldn't work was they were unequally yoked with each other," Bill says.
"You get the benefits of a small regional broker, without actually having to become partners with someone, buy a franchise or give up part of your income."
--Bill Russell, Bill Russell Insurance Agency, Austin, Texas
In the end, CAA's founders opted for a custom arrangement. "We looked at operating agreements, figured out things we liked, picked them out, and put together an agreement we liked," Tom says. Then they had to sell carriers on their concept.
"We wanted them to issue a master contract with CAA and individual contracts with each of the agencies," Bill recalls, noting they faced resistance from some companies, but most embraced it right away.
Licensing was another problem. "We went to the Texas Department of Insurance and talked to them. At first, they said we'd need to form a recording agency, then issue stock and make all the agents owners. It was kind of like merging." That didn't sit well with the agents, so discussions continued. "Then, they told us we had to form an MGA--a managing general agency," he says. "That's what we did. Every member in our agency group--all 28 of us--has an MGA license. It was formed as what we call a closed MGA. We don't accept business from other agents."
On October 1, 1997, Combined Agents of America, LLC, was established. Since then, it's grown into a quarter-billion-dollar organization of 28 agencies.
Factors driving growth
Bill says growth came because the arrangement meets agency needs. "It meant to these mid-sized agencies that they didn't have to combine with other agencies. Secondly, each one of us has our uniqueness and specialties, and we're able to continue with those specialties. There was no change in ownership. We could still plan our own destinies, chart our
own courses."
Agencies did gain greater access to markets. "Most of the companies would extend contracts to all the members, so as a member you would represent a lot more companies than you did on your own," Bill explains. In addition, most of the companies combined premiums of all the member agencies, which boosted agency revenue from profit sharing and other incentives.
The CAA contract includes a non-compete clause, which members say strengthens the relationship among agencies. "Because we don't compete against one another, any employee of any one of our agencies can call anybody else for help," Bill says. "If we have a particular type of account where we don't have a lot of expertise, or if we're not sure where the market is, we can blast out e-mails to one another and in 30 minutes or so have four or five different suggestions."
This non-compete arrangement works well in other ways, too. Tom recalls when things were different. About 15 years ago, the state agent association president asked Tom to help set up a sales techniques training facility for young agents. "He knew about my background with Liberty Mutual and the sales training you get there," Tom says.
"I thought about it quite a lot," he adds. "I called him and said, 'It's never gonna work. Even though we're all friendly competitors, I'm not prepared to stand up in front of them--friendly competitors--and tell them all the tricks I've learned in 25 years of selling business insurance.'
"With CAA, since we have a non-compete agreement, I'm willing to share with these young agents in these agencies, and the older ones, too," Tom says. "We're all willing to share, which gives a fast learning curve to our younger people and makes them much more successful than they would have been."
Agency perpetuation is another consideration. Bill says. "Many of us have sons or daughters or sons-in-law in the business. If anything were to happen to one of us right now, they're not quite ready to take over, so we can come alongside each other and help."
"We feel very strongly that the CAA model is the best choice for the independent agency system to survive and, even better, to flourish in the future."
--Tom McCorkle, McCorkle Commercial Insurance, San Antonio, Texas
Tom notes that CAA agencies combine E&O insurance into a master contract, which has saved members about 30% on premiums.
Bill suggests another agency advantage, which actually serves carriers and clients well, too. "We're building a distribution system," he says. "Because of that, we've been able to have some of our carriers offer exclusiveness in certain markets." Carriers find this can speed their products to market and cut down on communication time and costs.
Bill and Tom say that some of the other benefits that members receive are better profit-sharing payouts, preferred commission structures and access to a CAA-owned premium finance company.
Benefits extend to more than agents
Clients and carriers can be well served by the arrangement, as well. Tom says, "I can tell customers and prospects, 'Yes, it is McCorkle Commercial Insurance, but I do represent every major insurance market in the country.'" Bill adds, "Products often are designed specifically for their particular industry, so coverages and benefits are broader."
Relationships count, too. Bill says: "Customers historically, especially commercial insureds, enjoy doing business with independent agents. An independent agent has lived in the community, knows the customer, socializes with the customer, knows the customer's customers and vendors."
Tom adds: "Customers and prospects like to do business with successful people. We like to tell our customers that because of Combined Agents of America, we're now one of the largest insurance agencies in the state. They realize they're dealing with someone who has a future and who can take care of all of their insurance needs."
According to Bill, a couple of features of CAA are particularly attractive to carriers. "For companies that issue master contracts, we guarantee accounts current of members," he says. "Also, our agency screening process is more restrictive and detailed than theirs.
"We do a lot of work with loss ratios," he adds. "We will work with a member to come up with a plan to improve their loss ratio with a particular company."
Organization can serve as example
CAA may be an attractive model for other agents around the country. "In my opinion, if you're a mid-sized agency today, you better be thinking long and hard about your future," Tom says. "Companies are requiring more and more premium volume to maintain your contract. That's why we've seen so many mergers." While he was president of the San Antonio agents association in 1983, there were 360-some members, Tom says. Now there are 77. "I think you'll find that same scenario in every part of the country," he adds. "Some have gone out of business because they were just too small, but most of them have merged."
"If agencies want to perpetuate themselves, they cannot be the size they are today," Bill believes. "Being in this group affords you that perpetuation. You get the benefits of a small regional broker, without actually having to become partners with someone, buy a franchise, or give up part of your income."
Tom adds: "We feel very strongly that the CAA model is the best choice for the independent agency system to survive, and, even better, to flourish in the future. We think each day there are more and more reasons for a CAA to exist."
And, Bill concludes, "It doesn't matter if it's a soft market or a hard market." *