Whether you're new to working in the insurance industry or you're looking for a way to expand an existing book of business, you may be starting to consider becoming part of an insurance cluster. This type of arrangement allows you to offer your customers more services without having to send them elsewhere because you'll have partners and other service providers to work with. Here's a look at what you can expect an insurance cluster to cost you.
Many insurance clusters have a required buy-in that you must pay before you can become part of the group. This buy-in is usually a one-time fee, but it can be thousands of dollars in some cases. Unfortunately, that can be cost-prohibitive for smaller agencies and providers. Take the time to look at all of the financial details of any cluster that you want to join to see if they have a buy-in. There are some that don't require one, so keep looking if you can't afford that initial fee.
If you decide that an insurance cluster isn't right for you, or you want to work with a different cluster, you may have to pay a termination fee or contract buy-out to terminate your agreement early. Read the fine print of the contract before you sign, especially if you're not sure that this type of arrangement is going to be beneficial for your business. It's best to set aside the buy-out fee when you sign the contract, just in case you find that it's not the right fit for your agency.
Most every insurance cluster requires that members pay a monthly fee to maintain that membership. In some cases, that fee is a flat rate, while in others it is a percentage of the commissions you earn each month. Some even require a small monthly rate plus a percentage of your commissions. The biggest reason this is a concern is that inconsistent commission revenues can make it hard to pay a significant flat-rate membership fee each month. If your agency's monthly revenues are unpredictable, consider working with a cluster that only requires a percentage of the commission you record for the month.
Often charged on a semi-annual basis, maintenance fees for insurance clusters are usually used to help maintain the communication system, administration, and other necessary services that keep everyone working well together. Make sure that you understand how much these costs may be and how often you'll have to pay them.