How to Start an Insurance Agency
So, you’re ready to roll up your sleeves and start your own insurance agency. The perks of working for yourself versus working for an employer are wonderful, but starting an insurance agency from the ground up requires a lot of prep work in order to make it a success. Whether you’re a savvy captive agent with years of experience or a newcomer interested in the entrepreneurial world of insurance, there are certain things you must do to ensure your agency gets off on the right foot. But no matter where you are on your journey toward independence, these steps can help you keep your goals and burgeoning insurance agency in check:
Get Licensed (If You Haven’t Already)
If you’ve jumped into insurance with curiosity and a drive to succeed, you must first commit to taking and passing state-required licensing exams before you can call yourself an agent. Every state requires anywhere between 20 to 40 hours worth of insurance education courses before you can even put pen to paper and mark your answers with confidence on the exam. In fact, you’ll need to take an exam for every type of insurance you wish to sell. Though not necessarily a requirement, taking additional classes in finance or business as well as having relevant sales experience will help you all the more on your path to owning a profitable insurance agency.
Licensing Your Agency
Depending on whether you plan on establishing your agency as a sole proprietorship, a partnership, an LLC (limited liability corporation), a corporation, or an S corporation, you might have to acquire agency licensing in addition to individual agent licensing. If you establish your business as sole proprietorship, most states will not require agency licensing unless you’re hiring other agents. However, as a sole proprietor, you are held personally liable if the agency goes under. As an LLC, there is a solid distinction between business and personal assets, meaning you won’t have to worry about losing anything from your home or your personal bank account if, for whatever reason, the business doesn’t work out. If you wish to bring other agents in, you’ll have to consider the application and fee process involved with licensing not only your individual agents, but the agency as a whole. If you’re simply looking to hire support staff for office duties or telemarketing, you’ll be fine with just your individual license.
Form a Business Plan
You might have a grand plan bumping around in your head, but putting that plan on paper helps you to visualize your goals and understand the steps you must take in order to achieve them. Not only does a good business plan set you on a straight path, it establishes your credibility with potential stakeholders and shows insurance carriers that you know know what you’re doing. A good business plan will:
- Introduce your agency and summarize its overall mission statement/goal
- Explain how you plan to acquire customers
- Detail what services/products you will provide
- Go over target market and possible competitors
- How you plan to stand apart from those competitors
- Assess risks
- Establish initial budget and project income/expenses
If you plan to expand your agency and need to secure financing or business loans, a solid business plan is necessary. Not only does it help you stay on track, it showcases your professionalism and dedication to starting a profitable insurance agency.
Naming Your Agency
If you plan to ride solo, you may want “do business as” yourself, meaning, you use your own name to represent your agency. Many independent agents go this route. It’s simple, it works, and you won’t have to think too hard about it because it’s already your name! On the other hand, people forget names all the time, and having a unique name for your agency will set it apart and make it hard to forget. If you choose to do business as anything other than yourself, pick a name that avoids cliches, is easy to remember, and is relevant to your industry. Take your time with this one. The name is the first impression of your agency.
Police officers are expected to follow the law just like all citizens. And just as all officers of the law are expected to comply with the rules, so must an insurance agent comply with his or her own. Thus, an insurance agent must have insurance for his or her practice. You will need a BOP (Business Owner Policy) and E&O (Errors and Omission) Insurance. BOP provides property insurance for buildings and company owned equipment. There are a variety of packages that provide more comprehensive coverage in the case that you need something specific. BOP also includes business interruption insurance. Business interruption insurance protects your business and its income in the case that is disrupted by some disaster, such as a fire.
E&O is your professional liability insurance. People aren’t perfect, and E&O will ensure that you don’t take full responsibility in the case of a negligence claim (the error side of E&O). Any mistake could cause a client financial harm, and if a client were to take the case to court, E&O protects agents from having to bare the full cost of damages in the case of a loss. The omissions side of E&O protects agents in the case that they forget to inform a client of something that could potentially create financial distress, such as policy renewal.
If you do take on a team of office staff, you may also have to look into worker’s compensation insurance. The requirements for worker’s compensation vary depending on how many employees you have and what state you are operating in.
Last but certainly not least, you must secure a surety bond. A surety is a promise by a guarantor to pay one party in the event that the second party fails to make his or her payments or does not fulfill his or her contract. The bond protects the insurance companies and your clients in case an agent runs off with their premium.
Join an Insurance Agency Network Like ICA
If you truly want to make the most of your independent insurance agency, consider joining an insurance agency network like ICA/SIAA. An insurance agency network provides independent insurance agents with the tools they need to succeed. Ideally, you would want to sell insurances of all kinds from different companies. Unfortunately, most insurance agencies won’t allow you to sell their products until you have sold a certain minimum. With this conundrum, you’re stuck in a cage of limited growth and little flexibility, which is sort of the opposite of what being “independent” dictates. Instead of trying to get by as a starving agent, and as an alternative to lowering your head and heading back into the big agency game of being a “captive” agent, join an insurance agency network. With an agency network, you jump over the red tape that prevents independent agents from reaching the best policies and services. Insurance agency networks like ICA are a collective web of independent agents. By joining an agency network, you can reach policies of large insurance companies. Insurance agency networks are great for startup agencies in many aspects, providing independent agents with
higher commission rates, discounted insurance, educational resources, sales training, support, and a plethora of tools to help your business succeed. With ICA Agency Alliance, a Master Agency of SIAA, independent agents are given the keys to big insurance providers. ICA helps independent agents and budding agencies to achieve an income higher than what is possible as a captive agent. If you’re considering breaking away and becoming an independent agent, let ICA help you reach your goals.