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Franchising. Could It Be An Option For Your Agency

No one will dispute that keeping a thriving insurance agency going takes time, effort, management “know how”, decisive strategy, and financial backing. With direct writers and agency conglomerates breathing down the necks of “Main Street” agents and brokers, staying ahead is a full time job. Especially when some of the competition for your customers’ business is coming from the direct writing arms of the very insurance companies you write for, the battle for premiums (and commissions) is especially fierce. Add to the equation the fact that, thanks to technology, your client information could be sold by third party administrators back to insurance carriers. Your hard earned customer data becomes somebody else’s gain.

For a long while, the LAAA has urged our members to either; 1. Make a substantial investment and put quality management into their agencies, 2. Look at franchising options, 3. Become a captive agent or agency, 4. Simply get out of the business. The cold fact is that competition is going to get tougher, and the days of riding one or two product lines and keeping erratic office hours are long gone. The choice is still yours today.

Just as the association has focused on offering our members the tools they need to build thriving businesses, we felt it would also be beneficial to take a look at franchising opportunities for those members who were thinking in that direction. This method is so popular, in fact, that there are insurance companies, such as Infinity Insurance, that are developing their own franchise model as a method to retain their production safe and manage their agent source. We understand that there is a waiting list to become an Infinity Plus store. We also hear that Infinity has been flying in several large producers from across the country to take a look their Panorama City agency as a model. According to conversations we’ve had with company representatives, this is a way to help producers stay competitive and viable in the market.

We contacted three of the most prominent entities active today in our market– Fiesta Insurance Franchise Corporation, Brooke Franchise Corporation, and L.A. Insurance – to discover what each partnership entails.

FIESTA INSURANCE FRANCHISE CORPORATION

First, spoke with John Rost, president of Fiesta Insurance Franchise Corporation. (A detailed Q&A with Rost can be found in the March 2007 issue of Agenda Magazine.) Basically, Fiesta offers two opportunities for producers. The most common is that for new businesses. The potential franchisee will scout a new location (subject to Fiesta approval), and furnish the necessary office equipment. Upon finding a new location and signing the franchise agreement, Fiesta will provide a proprietary agency management system and new producer codes.

Currently, Fiesta offers over 36 different personal lines auto programs. According to Rost, a motivated new franchisee should be up and running in about 30 days. He said Fiesta currently has 13 franchises up and running, with another 10 expected soon, reaching an ultimate goal of 30 locations by the end of the year.

The other franchise opportunity involved conversion of an existing agency. The new Fiesta franchise would include the agency management system and new producer codes. Agency owners would have the option of canceling the franchise agreement at the end of one year at no cost and retain 100% of their customers.

The agency management system will allow the franchisee to operate with a paperless file system. Using document imaging and the Internet all files are scanned and available to the franchise on their computer terminals. This proprietary agency management system will reduce the workload of the staff and enable them to service the customers at a higher level of service. The franchisees benefit from the cost savings of multiple stores in reduced cost for items such as Errors and Omissions insurance, rating software, printing, and advertising.

Fiesta charges a $5000 franchise fee, and receives a portion of the gross commissions, which can be as low as a 15% for Fiesta. They say that higher commissions individual companies pay Fiesta franchisees will offset some of the loss of gross commissions.

The Fiesta franchise model was created after Rost worked for a few years with Fiesta satellite offices in an effort to expand the Fiesta brand. He decided that goal would be more efficiently obtained through licensed franchisees. After receiving franchisor authorization from the Federal Trade Commission in July 2006, Fiesta is ready to expand to 38 states.