How to Start an Independent Insurance Agency
We’re here to help with your first steps.
Your Journey Starts Here.
The New Agency Toolkit is a brief but thorough rendering of the steps necessary to start an independent agency. This toolkit is designed to educate and assist in the process of starting an independent insurance company, but it is up to you to make it happen. Building a successful insurance agency from scratch is possible. If you’re successful, the rewards are considerable, including the ability to call your own shots, a healthy return on investment in the form of owner’s equity, and the satisfaction of being in a business that protects people and their valuables. On the other hand, starting your own agency from scratch is challenging. Big “I” Kentucky brings this toolkit to you with help from our friends at the Independent Insurance Agents of Texas.
Establish a realistic timeline
Starting an agency will take time. How long it takes depends on your situation and how much time you have to work on it. It almost always takes more time than you think it will. Expect at least six months to arrange financing and four weeks to obtain E&O insurance.
Obtain qualified legal advice
This is necessary if you’re in a current relationship that may involve non-compete or other contractual-related issues. Take advantage of our First Call Free Legal member service, a 30 minute free legal call with our General Counsel, Rick Pitts.
Get an overview of the independent agency system and an introduction to basic insurance knowledge
If you have operated your own captive agency, you are ahead of the curve (especially if you were able to establish a book of business outside the captive market). You understand how an agency works and are versed in the technical aspects of insurance contracts; however, for as many similarities between owning a captive agency and owning an independent agency, there may be just as many differences.
Capital
While an independent agency is not capital intensive relative to other industries, you can expect to need approximately $40,000 to $50,000 in start-up capital to pay for things such as office space, equipment, furniture, E&O insurance and marketing. This doesn’t include resources necessary to live on while you build your customer base.
Access to insurance companies
You can get licensed but you can’t sell insurance without access to insurance companies and managing general agencies. For property and casualty insurance, most companies are looking for a long-term relationship. Getting an appointment requires experience in the business, a successful marketing and sales track record, a territory desirable to companies and a solid business plan.
Good sales and administrative skills
Some people have great selling skills and can make great insurance producers. Other people are great at administration and service. Starting an agency from scratch will require both skill sets.
Thorough technical expertise
Customers are placing their risk management needs in your hands and you need to understand the products you’re selling. Depending on the lines of business you intend to offer, there are many different policy forms and coverage implications.
If you’re interested, this toolkit will walk you through the steps necessary to get started and provide resources to help you implement the steps where possible.
Create the Business Plan
We will not bore you with the “not planning is planning to fail” lecture, but just about every industry relationship you need will require a formal business plan. This includes carrier prospects for appointments and E&O insurance providers. The business plan consists of a narrative, resumes, and several financial worksheets. The five things every business plan should address are:
The Numbers – You need to have realistic expectations of where revenues will come from and when and how cash will be used; furthermore, insurance carriers will be interested in growth projections. At a minimum, you should have start-up capital, a cash flow forecast, and a production forecast.
People – At its core, the fundamental value of any agency is in the capability of its people to execute its objectives. Your business plan should include information about the people who are responsible for executing it. At a minimum, include resumes of each of the key players that describe the professional and personal background relevant to the agency business as well as the knowledge, skills, and abilities possessed by each.
The Opportunity – A key to agency success should demonstrate your knowledge of your client base, your products and services, and how you will position your products and services to be selected by potential clients over your competitors.
The Business Environment – Your business plan should demonstrate that you have an awareness of your business environment, the impact on your business prospects, and how you will navigate it. The discussion should encompass state regulations, the economy, labor supply, customer markets, suppliers, and competitors.
The Risks – The best business plan readily identifies and confronts the risks to be faced. Potential stakeholders, especially prospective carriers, will develop confidence in those agencies that pose the risks and provide strategies to resolve them.
Meeting Legal Criteria
- Choose an Entity There are three broad categories to investigate when determining your business organization: sole proprietorships, partnerships, and corporations. While sole proprietorships are the least expensive and easiest to create, they carry a risk of personal liability for the owners. Partnerships and corporations can afford further protection for the owners but require more paperwork and cost.
- Obtain IRS ID The IRS requires a Taxpayer Identification Number for all entities. This number is used in the administration of tax laws. If your agency is organized as a sole proprietorship, your social security number is your tax identification number. If your agency is organized as a partnership or corporation, you are given a Federal Employer Identification Number (FEIN).
- Obtain Licenses
- How Do I Become An Agent in Kentucky
- Apply for E&O Prior to applying for an entity license with the Kentucky Department of Insurance, you will need to get errors and omissions insurance coverage. Professional liability policies are written on a claims-made basis. Your new E&O policy effective date will become the retroactive date. Since your agency is new and there is no prior information, your E&O carrier will have to underwrite you and your goals for the agency. E&O carriers will require a business plan and resume with all new applications. Big I KY is part of a national purchasing group providing E&O coverage to its members. For this reason, Big I KY membership is required to issue an E&O policy, however, you can receive a no-obligation quote without being a member. RECEIVE A QUOTE
The association is here to help members succeed. Big I KY offers support through education, insurance market placement, technical advice, governmental advocacy, and agency management support.
Secure Market Commitments
Direct appointments with a variety of established carriers that have broad, competitive insurance products are ideal; however, they are very hard to come by. Most agents must have at least a three-year track record and a sizable book of business to qualify. For most start-ups, market commitments will have to come from a combination of a few direct appointments and/or a variety of indirect markets such as wholesalers, managing general agencies, and market aggregators.
Choose an Agency Management System
A fundamental building block for today’s successful independent insurance agency is a good Agency Management System (AMS) that can provide a framework for all the necessary business processes. The most effective independent agencies have maximized the ability to operate electronically, minimizing double entry and moving paper. When you join Big I KY, you also become a member of the IIABA. They sponsor an organization made up of insurance brokers, carriers, and technology vendors called the Agents Council on Technology (ACT). The ACT website has numerous resources to help agencies harness technology to maximize productivity and profitability.
Establish Workflow Procedures
In Kentucky, it is estimated that one in five agents will be involved in an E&O claim. One of the best ways to avoid this potential is to create and develop a written procedures manual. This document should be fluid and adaptable to meet the market and client demands but should also establish some structured guidelines to enforce the way you want your business handled.
Obtain Additional Training – Technical, Management and Professional Development
Depending on your level of insurance industry experience, or your level of expertise in the various lines of business you intend to offer, Big I KY offers a wide variety of training resources to fit your needs.
Recruit Staff
Whether you need staff right off the bat or down the road, recruiting the right talent for the right roles is not easy, especially if you’re doing everything in the agency yourself. Big I KY has several programs to accommodate your needs, whether you are looking for new talent or more experienced staff.