Redefining what it means to be independent

The traditional models are being exposed as bloated, costly and restrictive

In the early ’80s, hair metal, spandex, fanny packs and fitness were all hot trends. The fitness industry boomed and spawned Denise Austin, Richard Simmons, Tae-Bo, Jane Fonda’s aerobic steps, etc. It also saw the birth and rapid expansion of large mega-gyms. Bally’s Fitness Centers, for example, offered access to a vast array of fitness tools and equipment, from spinning to Olympic pools to free weights to nautilus machines. You could get an overpriced protein bar or shake, book time with a personal trainer, take an aerobics class and even buy a branded wardrobe of puffy gym pants, headbands and leg warmers.

Ten years earlier, Title IX was signed by President Richard Nixon, which resulted in a steady increase in women participating in sports. The 1981 fitness boom responded to the growing numbers of men and women who were now actively working out. An opportunity arose to aggregate the many fitness areas under one roof to meet the public’s growing fitness needs. At its peak, Bally’s had over 400 fitness centers across the globe. Their business model worked, and they dominated the marketplace. There were, however, downsides. A steep enrollment fee, an expensive monthly fee, and lengthy contracts were difficult to escape. Essentially, they sold you on access, locked you in, and made it difficult to leave. They oversold memberships, knowing they could leverage the influx of New Year’s “resolutionists” whose attendance would wane by month’s end, yet locking them into a payment plan with complicated exit clauses.

Those who did attend were often frustrated with log jams of members hanging around and socializing, preventing equipment access. As this business model peaked, many fitness enthusiasts started to think of alternate ways to work out. As their model exploded, Bally’s began closing and selling off their locations. The industry had passed them by; however, their existence created an environment for alternate models to arise. One example was CrossFit, with its modest trappings and back-to-basics equipment, offering a different experience that stripped away the frills and the typical membership handcuffs.

For many years, I heard the labels “captive” and “independent” tossed around in the industry. The so-called “captive” carriers (I prefer the term “exclusive”) had a value proposition that made claims such as “be in business for yourself, but not by yourself, with the support of XYZ Company!” To some extent, this was true. The exclusive agency carriers had greater brand recognition on the national level and provided subsidy packages, AMS systems, etc. The downside was that the agent lived and died by the product portfolio and rates of just one carrier partner. The carrier owned policies, and the agency had only servicing rights. In most cases, if the agent failed, passed away, or retired, the book of business belonged to the exclusive carrier. New candidates frequently offered these assets as “seed books” to satisfy recruiting objectives.

In contrast, “independent” agencies boasted that they represented their clients rather than any carrier and could shop many carriers for the best rates. The agency typically owned the policies rather than the carriers, and they did indeed have the ability to shop for the best value for clients. However, satisfying the production requirements of multiple carriers could be challenging, and many agencies were heavy on just one or two carriers. When I would talk with IA’s, they often had a lobby full of carrier tiles displayed. Many times, the reality was that they had the vast majority of their premium with just one or two carriers, making them very similar to their captive peers. A negative loss ratio could, at best, negate contingency bonuses or, worse, cost their appointment. Exclusive channel carriers tended to work through loss ratio issues with their agent partners rather than canceling appointments. There were clear pluses and minuses to each scenario.

The most significant difference I noticed was that IA’s tended to be business owners while most EC were selling insurance. An independent agency had the freedom to create its: own portfolio of carriers/products and follow the marching orders of any one carrier, as many exclusive agents were forced to do. Because they had to secure their own AMS systems, phone systems, technology, etc., the IAs had to learn to fully build out an agency without relying on as much company assistance. Fundamentally, IA’s knew that clients bought from the agent first and the carrier a distant second. They were ahead of the curve with their agency branding, social media presence, etc. If they chose to, they could sell the book on the open market or create a succession plan for a chosen successor – often a son or daughter – with minimal carrier interference. Overall, the long-term advantages of independence far outweighed the early assistance provided by exclusive channel companies.

With all the advantages of being independent, it was still a struggle for many IAs to compete with the marketing dollars of a large, national exclusive carrier. This is where the aggregator comes in. They provided market access to a menu of carriers with lesser production requirements and, in some cases, no requirements. For this, an independent agency typically paid an upfront initiation fee and a monthly membership fee. While these fees were unquantifiably substantial, the value of scale in gaining appointments and favorable commission schedules made them worthwhile. That is until an agency owner decides to exit the relationship. The traditional aggregator model carried restrictions and covenants if the agent ever decided that they wanted to separate. The financial penalties of trying to leave the traditional aggregator often created a “Hotel California” effect” where you can check in any time you like, but you can never leave.

This leads to the essential questions that an agency owner with an aggregator relationship must ask themselves:

  • “How truly independent am I if I have to buy my way out of my agreement?”
  • “How much freedom do I have if the penalty costs prevent me from ever leaving?”

These independent agencies were nearly as captive as their exclusive agency peers. While the exclusives were bound to their captive carrier, the independents were bound to their aggregator partner. Neither had their total freedom nor their true independence.
That’s where The AC came in, with no initiation fee, a modest monthly charge that was the same regardless of agency size, and an easy-exit policy with no financial penalties. In my mind, this redefines what it means to be genuinely independent. Moreover, it represents a total paradigm shift in how aggregators have worked for decades.

Many of the former Bally’s locations have been purchased and renamed. There is still a place in the fitness industry for the big, traditional mega-gyms; however, most (ex: Planet Fitness) have switched to requiring no initiation fees, combined with low-cost, month-to-month memberships. Meanwhile, many specialized gyms have been created to fulfill specific niches and accommodate member needs. Orange Theory, Title Boxing, and Anytime Fitness are just a few examples. Despite some growing pains, Crossfit remains a force in the industry. The point is that the public got wise, and the industry became aware that large fees, coupled with hooks and handcuffs, were no longer a preferred way of attracting and retaining members. The industry had to respond by doing better for its members.

Apply this to the aggregator world. The traditional models are being exposed as bloated, costly and restrictive. Admittedly, they have positioned themselves as a critical agency partner – and for many years, they were. However, the industry has changed, margins have become tighter, and the need to provide a superior, alternate solution had set the stage for someone to create a much-needed paradigm shift. The AC has created that shift and has redefined what it means for our members to be truly, authentically independent.

One more advantage to remember: those thousands of dollars in aggregator cost savings will feel great in that 1984 fanny pack, should you ever decide to resurrect it.