As part of our coverage for April's feature story on clusters and aggregators,AA&B spoke with representatives of several groupsabout what makes their groups successful. We spoke with five groupsof different sizes, structures and geographic reach. Each offerssomething a little different to participating agencies.

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Here are their stories:

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J. Bruce Cochrane, CIC, President
Renaissance Alliance Insurance Services LLC(RAIS)
Wellesley,Mass.

Renaissance was established in 1999 to address the manyfrustrations of typical local community-based independent agencies,including industry fractionalization, inability to achievesustainable organic growth, and competition from regionalbrokers.

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We have 83 member agencies in three states: Massachusetts,Connecticut and Rhode Island. Current property-casualty aggregatepremium volume is $400 million, total property-casualty commissionis $52 million, and we represent 27 insurers with standard marketcontractual carrier relationships.

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Our members sign an exclusive brokerage contract; allproperty-casualty business is placed through RAIS, which magnifiesour market clout and influence.

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All members are allowed to operate autonomously because they'reall independent from RAIS. We have no ownership or controllinginterests in any of our agencies, and our agencies have noownership interest in RAIS. They set their own individual businessplans and look to RAIS to assist them in achievement of theirindividual goals.

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The main benefits for independent agencies joining RAIS is theability to have all the advantages of the largest regional agencyin New England, while still maintaining their local personalizedservice presence and persona. They're also able to get back todoing what they like to do, what they do best and the only thingthat makes them money--developing relationships and selling.

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The independent agency with shrinking or few options is nolonger independent. By contrast, the agency with unlimited optionsis more independent than ever. The two biggest strengths of theindependent agency system is their independence and locality.Locality is the springboard to relationships and the hallmark ofindependent agencies.

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Ironically, the two Achilles heels of the independent agencysystem are their independence and locality. Our agents don't giveup any of their independence. They become more independent byjoining RAIS.

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We receive significant support in many ways form our carriers,both financial and otherwise. We focus on delivering value to ourcarriers in the form of the only three things carriers seek in anagency relationship: profit, volume and ease of doing business. Ifwe are achieving top tier predictable and consistent underwritingprofits exceeding the carrier's own target ROE in large volumes ina cost-effective manner, there is plenty of motivation for thecarrier to make such a relationship mutually financiallybeneficial.

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Agents who are interested in joining a cluster or aggregatorshould do their homework. Make sure the group you are consideringjoining has sustainability, can deliver the advantages you areseeking and will enable you to achieve sustainable growth.

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Three things cause most informal groupings to fail:
o Lack of a clear vision - coming together just to share marketsand profit sharing is not a vision
o Lack of full time management - part time management of a group bymember agency principle constitutes a social club and not a seriousbusiness venture - full time management is needed to lead theagencies to achieving their clean vision
o Lack of capital - it takes money to properly set up and run thecentral operations that inevitably are the foundation of asuccessful group effort. Most agencies lack the excess capital tofund such operations, so an outside capital source isnecessary.

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Above all, make sure there cultural and values compatibilityamong your agency, the organization you are seeking to join and themembers of the grouping. It does you no good to join anorganization only to find the players are at odds with one anotheror are unethical. The "chain is only as strong as its weakest link"theory is very appropriate in deciding to join a group.

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Douglas S. Wicher, founder and CEO
SmartChoice InsuranceCenters
Greensboro,N.C.

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In 1994, I approached a major property-casualty insurer with anidea to benefit smaller independent insurance agencies and theircustomers. The idea was to give me a master code, and severalsmaller agencies subcodes. Each agent would continue to own theirbooks of business, but I would take responsibility for"gatekeeping" the business written and paying commissions. Theinsurer somewhat skeptically agreed, and I recruited 13 NorthCarolina agents to participate. The agents paid no fees to be inthe network, simply splitting commissions with me. After two years,we were producing $1.3 million in premium. At the end of 2008,Smart Choice agents were responsible for approximately $300 millionin written premium, with revenues of $35 million.

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Our program focuses primarily on standard and preferred personallines agents, as well as commercial insurance. Ancillary productsand services, including financial services through a partnershipwith Lincoln Financial Group, allow agents to maximize theirrevenue streams with little or not additional outlays of personnelor money.

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While many agents choose to write business only through SmartChoice insurance company partners, they have the option of keepingany direct contracts with companies they may have received prior tojoining Smart Choice.

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We do not charge any joining or ongoing fees to agents. Instead,we split commissions with them, 70 percent to the agent and 30percent to us. Unlike other programs, Smart Choice agents can earn100 percent of the commissions. After reaching a fair, attainablecommission level (combined from all the business they write throughSmart Choice companies), agencies receive 100 percent of thecommissions they earn about that cap.

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All agents in the program are 100 percent independent. SmartChoice does not require specific operating guideline compliance,other than industry standard ethical and regulatory adherence.

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Our agents benefit from being part of a strong national networkwhich results in our ability to attract quality insurance carriersthat are willing to provide subcodes to agents they may not haveotherwise been able to contract. Smaller agencies have the abilityto market nationally and regionally branded insurers' products,allowing them to compete with larger independent agencies, captiveagencies and direct writers.

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Our company partners have worked hand in hand with us in openingnew territories, training our agents, supporting our state meetingsand generally giving us access to their executive management. Theyhave proven to be an important sounding board as we evaluate ideasfor additional agent services, and have worked closely with us toensure our agents have the tools and support they need.

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Ed Weeren, CPCU, ARM, pastchairman and founder
Combined Agents of AmericaLLC (CAA)
Austin, Texas

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CAA's official start date was January 1, 1998, although it wasactually started a year earlier by seven friendly competitors fromTexas, including myself, who started talking about forming acompany to help perpetuate our businesses and remain autonomous. Wedidn't want to sell out or merge, even though companies in allindustries were merging and getting bigger. In the fall of 1997, wecalled in a lawyer to put the legal touches on our agreement. Thenwe formed a premium finance company and called in the top-rankingpeople at our companies to tell them what we were doing. At firstonly three or four companies approved, but eventually the otherswent along with it.

In the beginning, our coverage was the corridor from Waco to SanAntonio. As our companies became comfortable in this area, theystarted to expand. We started with 7 agency members operating onlyin Texas. Now we have 40, with a property-casualty premium volumeof $387 million in 2007. We have expanded into Oklahoma and Kansas.We're expanding incrementally because from the start we've focusedon getting good people, not necessarily the biggest or the oldestfirms. One of our goals then and now is to provide a good product,a lower loss ratio than the statewide average, and our range ofcompanies. These will go up and down with storms and economicfactors, but we want to beat the average.

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We've been in a soft market, but at the end of the day whenthings turn around, companies are still going to look at the bottomline if the agency is making them a profit. We established a lossratio review committee from the start which annually reviews everyagent's loss ratios with their major companies; if they are bad,the agency must explain why and address the problem.

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Our requirements for membership are that the agency must befinancially in trust, must be an established business, and shouldhave a good spread of risk. We wanted to stay in the more preferredareas of the state, where companies like to underwrite. We alsowant agencies to demonstrate a willingness to work with othermembers, because a lot of the work is done by volunteers in theorganization through committees.

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Every agency is totally autonomous; there is no sharedownership. Our central office is in Austin and we have an executivedirector, which creates some expense. To offset this, we chargeeach agency a fee each month, based on their premium volume. Wekeep a modest amount of capital and our collective profits passthrough to the agencies.

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As part of our membership services, we've added a brokerageagency at our Austin office for their use only. We also have an MGAlicense with a very experienced guy running it, which gives usaccess to companies that are selective with appointments.

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Our members represent most national insurers, including Central,Hartford, Travelers, CNA, Allied, America First Group, andregionals like State Auto and United Fire. Through our brokerage,we can also access Fireman's Fund, Chubb's personal lines market,Utica, and others.

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Our contract is basically an operating agreement that memberssign and agree not to compete with each other. However, members canleave as easily as they get in, although we've never had anyoneleave unless they sell their agency. We also issue a certificate ofownership and an initial membership fee. If they leave, they getthat money back and we get the certificate of ownership.

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I've been in the business for 50 years and I've seen manyagencies and companies go away. If you're an independent agent, youneed to get serious about staying in business in the long run. Ifyou're interested in a group, look at how it's structured: some youcan't get out of, others try to do things on a grand scale offinancing, so agents must be careful about that.

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There are some good groups are out there, but you need to seewhat is the cost and what they offer. If we're at a seminar and anagent asks about us, we're not reluctant to let them see howexcited we are about the group. Seek out agent friends that are ingroups and explore the things they can talk about. But don't pay abunch of money to get in, or sign an onerous agreement.

Paul Tracy, vice president
Grindstone Financial Group LLC
Ellsworth, Maine


Our agency, Winter Harbor Agency, was established in 1898 by mygreat-grandfather. We're located in a very rural area in Maine, sothere's only so much business. The Holmes Agency is 17 miles downthe road and has been around since 1868 to the Grant Agency ofEllsworth and Bar Harbor. His great-aunt worked at the agency andeventually bought it. I've known the owner, Blaine "Buzzy" Holmes,since I was a kid; I'm 46 and Buzz is 67. We both wanted to run ourown businesses, but the big issue was meeting carrier volumerequirements. We had markets in common: 65 percent personal, andsome marine business like lobster and pleasure boats.

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Looking at our contingent commission over the past 15 years andour books of business before that, we saw that some years it wouldbe zero, other years $40,000, the next year zero, after that$5,000. We decided it would make more sense to combine forces; thatway the commission would go up or down, but it's always there, andthat's how small agencies can make money to put back into theirbusinesses to buy computers and upgrade.

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Before grouping, we did a lot of research on our own, got onlinewith the Big I, looked at cluster agreements, and chose how wewanted to do business together, which was the genesis of our agencyagreement. We started talking seriously about grouping in 1991 andstarted a third agency in another community. It all came togetherto cluster the three agencies in 1994.

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We have 19 agencies in 20 locations, most in eastern Maine. Thepremium volume for all lines of business is between $30 and $40million. Our biggest and most supportive market is The Hanover,although other insurers include Concord, MEMIC, Patrons, Acadia,One Beacon, Peerless. Maine Mutual, Main Street America, Andover,Union Mutual, Norfolk and Dedham, Patriot Insurance, Progressive,Foremost, Bristol West and Farmers.

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Every company that's part of this group has the final word ofwho represents them, but they facilitate the group arrangement andmost have been very supportive. The benefit to the company isthey're getting a prescreened person. Their marketing reps know ofgood agencies that need help to get another market or in area whereopportunities are limited and will get bumped out as profitsharinglevels go up.

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All of our member agencies have been referrals from companymarketing representatives, and most are in rural towns. Within ourgroup we have had guys that started as one-person agencies and nowhave two people because now they have market access throughGrindstone. Members pay a monthly fee based on commissions, alongwith an entry fee. We don't seek ownership in member agencies andhave not allowed anyone to buy into Grindstone.

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The main benefit to our members is market access, but we alsoprovide 6 to 9 6-hour continuing education classes a year, and apro-rata profit-sharing split based on volume--if we write $1million for a company and get a profit-sharing check for $100,000,Grindstone collects 10 percent and $90,000 is split by all agenciesthat put in any volume with that company, regardless of lossratio.

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In all Grindstone's years in business, we have only had oneagent that didn't come out ahead, and that was because they had ahuge book of business with an insurer that didn't do profitsharingone year. Although we've never had an agency pull out, we have hadagencies that got sold to bigger agencies.

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I would advice agents interested in grouping to think hard aboutwhat they want from the arrangement. To me, ownership was thebiggest deal because I want to be my own boss. Agencies should dothe numbers work and determine whether whether it's a win for bothparties, which is how we tried to structure Grindstone. Somearrangements call for the agency to give up 50 percent of theirbusiness, others ask for 25 percent in arrangements where everyoneowns part of the business and the agency owner is just a manager.Grindstone doesn't run that way.

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We don't tell anyone how to run their business or where to placebusiness, but in our contract if an agent has legal issues, that'sgrounds for being kicked out. Our contract is 2-year agreement thatrenews perpetually unless there's a serious problem with a carrier,such as a contract violation.

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David E. Boedker, president &CEO
Keystone Insurers GroupInc.
Northumberland,Pa.

Keystone Insurers Group, which is wholly owned by its partneragencies and employees, was founded in 1983 on the premise thatthere would be greater opportunities as a group rather than asindividuals. Keystone is regional simply because there are states,and areas within states, that simply would not generate the numbersof franchises needed to support the model. For example, every statehas a vice president responsible for providing services. Without atleast 20 or 30 franchisees, the state could not support thatpresence and the array of services Keystone provides.

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We have exercised the power of partnering in an industry thathas shown a propensity for dramatic and often drastic change.Keystone does not own agency partners; Keystone does not tell apartner how to operate; Keystone does not usurp a partner'sidentity or independence. Keystone's mantras are greateropportunities for partners and the perpetuation and strengtheningof the independent agency system.

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Our model is unique in that we partner only with agencies thatare doing fine on their own, but that recognize coming together,while maintaining ownership and individual identity, providessignificant clout, greater independence, enhanced opportunities andan unparalleled intellectual capital.

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We began 2009 with approximately 175 partners in Pennsylvania,North Carolina, Virginia, Indiana and Ohio. Our model is to enter anew state every 16 or 20 months. We have earmarked Kentucky,Tennessee, Georgia, Illinois and South Carolina as the nextopportunities for expansion.

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Keystone partners write all lines of business. Core carrierrepresentation often varies by state simply because not everycarrier is licensed to do business in all states. Keystone is mostsuccessful with those national and regional carriers doing businessin all of the states in which Keystone is present.

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Our partners determine what is best for their individualagencies so there is no loss of autonomy. In fact, our partners saythey are more independent by virtue of Keystone than they couldhave ever been on their own.
We have several divisions within Keystone (exclusive programs, lossmanagement, legacy, benefits, financial services, Keystone RiskManagers, profitability and Production, and service), and a partnercan pick and choose those needed to realize greater success.

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We don't do start-ups; we aren't interested in agencies that arestruggling; we're not interested in agencies that, on their own,cannot get markets or command the respect of their carriers. Wewant only agencies that are doing fine on their own. This becomesone of Keystone's major attractions for interested agencies.

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Keystone is governed by FTC regulation, which is a platform offull disclosure. Partners can leave after one year for any reasonwhatsoever. We are proudest of the fact that in 26 years, we havenever had a partner decide to leave.

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The average agency partnering with Keystone will take months,sometimes years, to make a decision, and we're willing to work andbe patient with them. It is a major decision, and both Keystone andthe agency had better be sure it is mutually beneficial.

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Our advice on partnering with any organization: Read the fineprint, understand the model with whom you're partnering; understandwhat you can and will derive from the relationship, not what youhope you'll derive; respect those who have gone before. Andunderstand your own agency. The result of partnering with greatindependent agencies is a productive, profitable entity thatcommands respect and opportunity and that adds value to partneragencies.

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