During the ’80s, small insurance agencies were put on the endangered species list as cost and capacity issues caused many to go out of business or sell to larger competitors. To save themselves from extinction, small insurance agency owners went to bed every night asking themselves one question: How can we gain the required purchasing power without giving up agency ownership?

Rob Orr, the manager of a small insurance agency at the time, came up with a solution: franchising—with a twist. Instead of forming another captive program such as State Farm where franchisees can only sell State Farm insurance products, Orr wanted to give franchisees as many choices as possible. In 1986, he formed Brooke Corporation to carry out his vision. Today, although the more than 700 Brooke franchisees in 29 states operate under the company’s trade name, they have the opportunity to sell through hundreds of insurance providers, explained Orr, CEO of the Overland Park, Kan.-based company.

Brooke Corporation was built on the idea that local businessmen serve customers better than large companies where customers are often treated as numbers. “Local entrepreneurs know their customers because their customers are their neighbors. The caveat is that they often don’t have the resources to do that. As a franchisor, we can provide those resources, enabling these entrepreneurs to make more money and handle more customers,” Orr said.

Support structures
Brooke Corporation provides franchisees with the financial backing and back-room support needed to compete against the big boys. Franchisees have access to the company’s 25,000-square-foot advertising center, which assists with everything from logo design to TV advertisements; a facility center that helps them identify suitable locations and get their business started; and a processing center that handles cash and document management.

The Brooke Management System (BMS) is the backbone of the franchisee’s operations. The proprietary system is integrated with the processing, advertising, and facility centers to delivery back-office support. It also works hand-in-hand with AMS SetWrite to provide insurance policy ratings to franchisees, and it interfaces with IVANS download services, allowing franchisees to download policy information directly from insurance companies’ Web sites.

Orr explained that most third-party insurance software products don’t fit Brooke’s business model, as most are manufactured under the assumption that the franchisees will be handling back-office functions. “BMS represents a complete rethinking of agency automation and agency management,” he said.

Most importantly, franchisees reap the benefits of operating under Brooke’s strong reputation. “Having a trusted trade name is crucial, particularly in the age of the Internet. When you request a quote online, you have no way of knowing if the agent practices ethically. We police our agents so consumers can have some comfort that the people they are working with are legitimate,” the CEO explained.

Financial advantage
To support its core franchising business, Brooke Corporation developed two subsidiaries. Brooke Credit Corporation is responsible for the company’s success in gaining critical mass over the years. According to Orr, no one else in insurance industry has been able to grow as large, mainly because they don’t have the financial backing needed to get franchises off the ground.

“It is our ability to provide financing that gave us a foothold in this niche. People come to us because we can provide them with credit to acquire an insurance agency and convert it into one of our franchises,” he said.

Brooke Credit Corporation started out in the mid-1990s lending only to Brooke franchisees, but as the company’s growth strategy today relies less on conversions (existing insurance agencies converted into franchises) and more on startups, the subsidiary has branched out and now lends to other insurance companies. “That business has maintained strong performance, but it no longer depends on the franchise model for loans,” Orr said.

Orr explained that converting an existing insurance agency requires far more resources than building a startup. For starters, the franchisee requires a loan to purchase the agency, which has an existing customer base, employees, and business model. The transition to a franchise business model can be lengthy
and somewhat painful.

When opening a startup, franchisees don’t need financing, and fewer resources are required since there are no customers and very few employees to start. As a consequence, the company can open far more startup locations per month than it can conversions. “Over the past 12 months, we’ve trended more toward startups, which has allowed us to expand faster than we could otherwise,” Orr said.

The second subsidiary is Brooke Brokerage Corporation, a wholesale broker providing product lines for Brooke franchisees to sell, including commercial auto insurance, excess liability, and prize indemnification. To add to its offerings, Brooke Brokerage Corporation recently bought Generations Bank from Kansas City Life Insurance Company, which is now operating under the name Brooke Savings Bank.

The company will benefit from the acquisition in two ways. First, it will allow Brooke franchisees to sell banking products, such as certificates of deposit or annuities, as a secondary service. Second, the company can now recruit agents who wish to sell banking products as a primary service. “Maybe you are not interested in insurance, but you’d like to sell banking services. Previously, because of the capital required to run a bank, that couldn’t happen, but with our franchise model, we provide the banking services, and the franchisees get a commission for selling them,” Orr explained.

“Our franchisees sell for a multitude of companies, and we just wanted to be one of them, particularly banking services or life insurance because they don’t compete with our core
franchise business.”