When fully implemented, SIAA’s business plan calls for the appointment of 239 Master Agencies operating in 373 territories with an estimated 25 to 35 Independent Satellite Members (ISMs) each. SIAA’s final national network goal of 10,096 ISMS in 50 states will generate $36 billion in premium with approximately 500 insurance companies.

SIAA’s fundamental mission is to operate as an agency distribution network dedicated to the creation, retention and growth of the independent insurance agency system. In turn, SIAA provides large regional agencies a proven turnkey program to create and develop a valuable network of local independent agencies. Most importantly, SIAA functions as a consolidator of member premium portfolios utilizing its collective strength through traditional and alternative market channels to provide significant income and equity growth opportunities.

A new corporate identity and a business-to-business national advertising campaign was commissioned in fourth quarter 1998 to carry through FY 1999 to enhance insurance industry awareness of SIAA's position in the distribution of insurance products through independent agencies.

1998 Corporate enhancements included expanded electronic networking capabilities, creation of an Opportunities Division and restructuring of Marketing and Internal Operations responsibilities. With an emphasis on value added member opportunities, SIAA entered into Strategic Partnership Agreements with a number of Regional and National Insurance Companies resulting in significant increased member agency earnings and equity appreciation.

SIAA is the outgrowth of the Satellite Agency Network Group (SAN Group) formed in New England by James Masiello in 1983. Agency networking "best practices" created and refined by SAN Group over 15 years were replicated to create SIAA, the national equivalent of SAN.

Essentially, SIAA is an equity-sharing, tiered distribution system whereby a large retail agency (10-30 employees) forms a separate business entity, called a "Master Agency", which operates as a wholesale unit for smaller agencies (1-9 employees), called "Satellite Agencies". The Master Agency has an equity position in, and receives a percentage of commission income on all business generated by the Satellite Agency from the time of their agreement. SIAA has an equity position in, and receives a percentage of all revenue generated by the Master Agency. In addition, the Master Agency earns a vested interest in SIAA, the national network.

Master Agencies pay a fee to SIAA for appointment to specifically defined and protected geographic territories from which the Master Agencies recruit Satellites. Each Master Agency enters into a long term contract with SIAA, and Satellite Agencies enter into long term contracts with their respective Master Agencies. The contracts cover performance and relationship requirements, including production quality and minimums and buy-sell options and requirements.

SIAA has established Strategic Business Units (SBUs), headed by regional presidents that represent SIAA in specifically defined geographic territories. The SBU selects, appoints and trains the Master Agency. Currently there are eight SBUs designated to cover specific states.

Experience has shown that insurance company marketing and underwriting staff provide a high number of quality Satellite prospects to the Master Agency. SIAA supplements company leads by identifying, selecting and qualifying Satellite prospects and making appointments for the Master Agency. At the Master Agency's option, this service from SIAA may be continued for longer periods.

Currently, the SIAA consists of 25 Master Agencies comprising 79 territories and approaching 200 Satellite Agencies in 31 states generating over $750 million of profitable premium (less than 50 percent loss ratio) with 740 insurance companies. Premium volume with one company is in excess of $25 million and several others in excess of $10 million. Accordingly, insurance companies are continuing to partner strategically with SIAA as it grows the network nationally.

In addition, financial institutions are considering SIAA as a vehicle to penetrate the insurance business. Interest from financial institutions includes making capital investments, acquiring Master Agencies and using branches as Satellite Agencies.

SIAA's business model is well under way to appoint 239 Master Agencies comprising 373 territories with approximately 25 to 35 satellites each by the end of 2004. This will result in a national network of 10,096 independent agencies in 50 states generating $30 billion in premium with more than 750 insurance companies.

For Tom Frey, President of The Landmark Planning Group, an independent agency in Floral Park, New York, SIAA was an answer to the dilemma posed last year, "How to grow the agency without buying, selling, merging or acquiring producers?"

After months of due diligence, Tom and his partner Bob Henken decided to join SIAA to create their own Master Agency, the "Insurance Agents Alliance of Long Island" (IAALI). According to Tom, "SIAA provides the best win-win arrangement for large and small agencies to profitably grow while remaining independent and relatively safe from industry contraction."

Although somewhat anxious at first about the reception from local small agencies, Tom and Bob were overwhelmed at a recent association conference, where they received over 150 inquiries concerning IAALI.

Shortly thereafter, The Valentine Agency of Mineola joined IAALI as the first Satellite Agency. Owned by A. Robbins Valentine, Jr., The Valentine Agency is a third generation agency employing six people and representing GA, CNA and Merchants. In addition, The Valentine Agency now has access to over 14 companies represented by IAALI. According to Valentine, "IAALI addressed all my concerns including access to markets at full commission, perpetuation, sales support and any other help I needed."

SIAA holds two conferences each year in Hilton Head, South Carolina, where Master Agencies and selected Master Agency prospects get together to discuss ways to improve the network. These are "bottom up" meetings essentially run by members to initiate improvements within the network, including new relationships and agreements with insurance carriers on new products, profit sharing contingencies, excess compensation and other issues, as well as improvements in growing the network.

It was at one of these meetings, that Mark and Chuck Rollins, Chairman and CEO and President respectively of The Rollins Agency in Tuckahoe, New York, decided that SIAA was one of the keys in their agency's strategic plan. As owners of one of the largest agencies in the Hudson Valley ($4.5 million revenue), both Mark and Chuck believe strongly in sharing their knowledge to help smaller independent agencies grow and prosper. They are active members in community, industry and agency associations and have even developed agency relationships in over six countries to facilitate insurance coverage for international clients.

According to Mark Rollins, "SIAA is the perfect way for The Rollins Agency to partner with smaller independent agencies and help them grow their business while they remain independent. We can give them access to just about any market they need, bring them profit sharing without any premium commitment, and help them write any account no matter what size or complexity."

But, while this strategy pays off for insurers, it also pressures small and midsize agents to grow fast - or get squeezed out altogether.

Some independent agents are countering this market reality by joining agency networks. These agency executives believe that by giving up a little - usually a small stake in their companies, membership dues, or information about their product lines and operations - they can remain independent and even grow without having to merge or invest in acquisitions and expansion.

James A. Masiello's Satellite Agency Network in Keene, New Hampshire, is succeeding with a formula in which a larger agency expands its business by gathering a group of small agents and giving them access to a greater number of insurers than they would be able to contract with on their own.

"We effectively have a distribution system" without hiring additional staff for his agency, increasing office space or purchasing more computer power, Mr. Masiello said.

One of Mr. Masiello's satellites is the McBriarty Insurance Agency in Milford, New Hampshire, which has a premium volume of $2 million. Jack McBriarty, the agency's principal, said affiliation with SAN gives him access to a wider range of insurers than he would have on his own, the opportunity to buy computers and software as part of a group, additional support and staff and an efficient regional marketing mechanism.

In exchange for a portion of the satellite agencies' commissions, Mr. Masiello's in-house staff compiles lists of potential clients that include contacts and potential competitors.

Mr. Masiello will also obtain a quote for a member if that agency does not have access to an insurer in that market.

Mr. McBriarty said the services provided by SAN enable him to do the business of a larger agent.

"With a $2 million business, there's no way I would have 23 (insurance companies) in here" without SAN, he said.

Although the satellites do meet six times a year, disclose financial information to one another and talk informally, most of the communication occurs between Mr. Masiello and the principals of the satellites.

"I don't care what all the other satellites are doing at all. I deal with Jim," said Mr. McBriarty.

But recently, it seems that market constraints have virtually eliminated such opportunities. Companies no longer are willing to appoint new agents unless they already control significant premium volume and can show them what their loss ratio experience has been. It's a classic "Catch 22" situation. You can't start writing business unless you already have business. And it is not only new agents that are having trouble. Smaller agencies already in existence are experiencing many of the same difficulties. Insurance companies are demanding volume levels that these agencies just cannot provide. As a result, many smaller agencies have sold out or merged with other agencies just to gain access to markets. The effect is that, in many cases, independent agents have become less independent or even have left the business entirely. The opportunities for entrepreneurs to enter the insurance business have been seriously constrained. And the consequences are clear.

Young talented people who once might have entered this business are going elsewhere.

He says: "We want to concentrate where nobody else wants to concentrate; we want to start with the small, local independent agent and keep him that way. We want to get him off the endangered species list."

SIAA is comprised of small agencies, known as Independent Satellite Members (ISM's), that are organized into regional networks by larger "Master Agencies."

The Master Agencies are divisions of existing, profitable firms-called partnership agencies under the SIAA model-which, to qualify, must post between $500,000 and $1 million in property-casualty income.

The partnership agencies must also bring strong geographic company representation and experienced management to the table.

SIAA offers training to the Master Agency on everything from contracts to management to advertising and marketing while at the same time developing niche programs for them and their satellites.

The arrangement may sound a little like a national cluster, but Mr. Masiello says that in both structure and operation, it's quite different.

The network should "help take pressure off the partnership agencies," he said, nothing that the master agencies gain 75 percent of all SIAA negotiated excess commission and profit sharing overrides.

"Agents are having trouble meeting company demands for growth. This way, agencies can grow because the satellites grow." Appointing and managing satellites is more cost-effective and profitable than establishing branch offices.

The concept worked well for the Masiello Group's Satellite Agency Network (SAN). With agencies in New Hampshire, Vermont, Massachusetts, Maine and Connecticut, the network has a 60-40 mix of commercial and personal lines business. The profit to the partnership agency - the Masiello firm - was 41.6 percent, he said. "The philosophy that has worked here is that people will work harder for themselves than for someone else."

Members additionally benefit from access to their Master Agency's sales center and financial services operation - which they typically would not on their own have the resources to operate - as well as to new carriers, new products and new services marketed by SIAA.

The satellites also get a boost from preferred profit sharing arrangements which, because of their size, they might not otherwise have.

Mr. Masiello predicted quick growth for the organization. In five years, he said, he expects the group to post in excess of $2 billion in premium volume produced through networks created by some 40 master agencies nationwide.

"What's the proof? We've got an organization that now works."

Insurers, he said find the idea attractive because it allows them more efficient access to the often profitable business produced by small, local agencies, but on a more centralized administrative basis, working primarily with Master Agencies and SIAA.

Also, because SIAA in its member contracts attends to perpetuation issues, carriers are assured of the continuation of their business interest in SIAA member firms.

"I've talked to companies (about a national satellite program) which have said they will go with (us) into state because they know what to expect from us. I see instances where companies may go into new markets," Masiello added, noting that regional companies in particular have expressed great interest in the satellite concept.

That's not to say that satellites in that network won't have their own contractual relationships with carriers; they will, he said. But part of SIAA's mission is to negotiate preferred deals and programs that help satellites meet the demands of carriers. SIAA intends to do so, he added without imposing those same strict production requirements on member agencies.

"We are a voluntary organization, We don't require the agents to do anything other than operate their own business," he said.

Ultimately, he said, the arrangement goes a long way toward increasing the value of the small independent agencies.

"The value of the agencies is decreasing because of market problems," with the difficulties particularly acute among small firms. "We enhance agency values because (satellites) are members of a large organization but they're still their own bosses.

Recent studies have indicated that the number of independent agencies could fall by 20% or more in the next years. The survivors are expected to include the larger, more highly capitalized agencies. Pressure from both companies and insureds are expected to continue to place unrelenting demands upon the independent agents.

A number of organizations have been formed over the past few years which have attempted to offer to the smaller agent an opportunity to obtain the leverage of size through association with other agencies.

One of the more interesting concepts to be put forth in the last several years to assist agencies in remaining independent is SIAA, A National Insurance Agency Alliance. SIAA is an offshoot of Satellite Agency Network (SAN), a New England based organization formed approximately thirteen years ago.

The stated mission of SIAA is to create a viable infrastructure in which smaller agents can continue to remain viable as we approach the year 2000. One of the key issues confronting agencies with less than $1,000,000 of premiums is availability of markets.

Most carriers, in spite of the fact that they recognize that smaller agencies generally generate attractive loss ratios, find it difficult, economically, to justify the costs associated with maintaining relationships with smaller agencies.

SIAA has found an interesting way of addressing those issues through its satellite system of master agencies and independent satellites, which access additional markets through the master agencies. Existing carriers continue to deal with only the master agencies so economically they realize the benefits associated with a consolidated point of contact. Carriers also benefit from the continued source of profitable premium dollars from the independent satellites while enabling these satellites to produce new business through the independent satellite's network.

Many carriers have apparently recognized the value of the existence of the SIAA concept and the typical cluster concept is fairly significant. Clusters involve the giving up of some level of autonomy since there must of necessity be a joint management structure that makes decisions on behalf of the cluster. Because of the requirement to share decision-making authority, many clusters become difficult to sustain.

Under the SIAA concept, the master agency is created by agreement between what is characterized as the partnership agent and SIAA, which leaves the partnership agency totally autonomous. The master agency is, in fact, owned completely by the partnership agency. The principals of the partnership agency continue to run their agency independently of the SIAA master and satellite system, while gaining the ability to produce additional business for the agency through the system.

Market relationships continue to be maintained at the sole discretion of the partnership agency and selectively shared through the master agency with the independent satellite agencies.

The SIAA concept is now, apparently, being rolled out on a national basis from its original origins in New England. The SIAA alternative perpetuation strategy is certainly one that should be explored by those agents attempting to grow their agencies aggressively as well as agencies that have the ability to produce profitable business if they have the appropriate access to markets.

Agents who do not want to acquire, sell or merge may find this concept an attractive alternative to those options. In fact, the option to acquire, sell or merge is not precluded by the SIAA concept since the partnership agency continues to remain completely independent.

Smaller agencies may want to consider exploring the possibility of joining in the SIAA concept as an ISM to assure continued access to markets, as well as insurance against being forced into an untenable situation due to the loss of one of its few markets.

As the consolidation of agencies continues over the next several years, agents will have to choose the best route to assuring viability. The more information the principals of an agency have, the better able they will be to make a rational decision regarding the most appropriate course of action for themselves and their agencies.
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Harbor Capital Advisors, Inc. is an investment banking and consulting organization providing services to insurance companies, agents and brokers, and others engaged in the insurance industry. We offer a broad spectrum of financial and management consulting regarding mergers and acquisitions, valuations and fairness opinions, strategic and business planning, litigation support and assistance in the management of troubled situations. In addition, we raise capital for business growth, acquisitions and restructuring. Our effectiveness derives from our team of industry professionals, each of whom has proven expertise in handling the complexities of insurance transactions and experience in dealing with regulatory, economic and business management issues.
Paul J. Di Stefano , CPA, CPCU, Managing Director of Harbor Capital Advisors, Inc., has over 25 years experience in insurance and financial services, including extensive involvement with insurance company and agency mergers and acquisitions, corporate finance transactions, agency fair market appraisals as well as litigation support.
Mr. Di Stefano's prior experience includes serving in senior executive capacities with American International Group and March & McLennan's direct marketing subsidiary Seabury & Smith. During his tenure at American International Group, Mr. Di Stefano was responsible for the creation of A. I. Credit Corp., today one of the company's leading premium finance companies. Prior to establishing Harbor Capital in 1987, Mr. Di Stefano was Managing Director - Mergers & Acquisitions for Russell Miller and a principal of The Manhattan Group.