For the entrepreneurial insurance professional, knowing how to start an insurance agency can literally mean the difference between building a thriving, lucrative practice and a failed business starting-up. Done right, establishing your own independent insurance agency or brokerage firm, can earn you the income and independence that you seek.
Six Tips on How to Start an Insurance Agency
Write a Business Plan
A key ingredient of any successful start-up business is an individualized business plan. It is also a necessary requirement if you intend to apply for a business loan. In addition to your business goals, marketing plan and sales strategy, here are some important considerations to take into account when you develop your business plan.
- Decide whether you want to be a captive agent, selling exclusively for one company, or an independent agent or broker, representing several different insurers.
- Review the various lines of insurance and determine whether you will sell one or more. Property, liability, life and health insurance are the most common sectors.
- Evaluate the option to start a franchise insurance agency, buy an existing insurance agency, or start one up from scratch.
A well-oiled marketing strategy is an important component of your business plan, and it will enable you to hit the ground running. Identify and research your target market, and come up with strategies to reach this market through advertising, sales calls and referrals.
Obtain Your Insurance License
You must obtain a license to sell insurance in the state in which you want to open your agency. This involves taking and passing a licensing exam for each type of insurance that you want to sell. You may also be required to take specific pre-licensing classes. Check with your state's Department of Insurance for specific licensing requirements, and any other pre-requisites for becoming a licensed insurance agent.
Partnering with a well-established, reputable insurer will bestow your start-up agency with a measure of credibility. The best rated insurance companies also tend to offer a whole host of sales and marketing tools, as well as comprehensive product support.
Research the financial ratings of the different insurers you would like to represent. Contact the marketing department of the company or companies you want to work with. Be prepared to review your business goals and marketing strategy for starting and growing your insurance agency.
Purchase Errors and Omissions (E&O) Insurance
As an independent agent, you have to obtain your own E&O Insurance. This policy provides professional liability coverage in the event that you are found legally liable for a wrongful act or omission in the delivery of your services. Most insurance companies require their agents to carry an errors and omissions insurance policy.
Register your Business
Register your business and get any local, state and federal licenses and permits. Depending the business structure you choose to set up (sole proprietorship, partnership, LLC or corporation), you may need to get a Tax ID number. An Employer Identification Number (EIN) is required if you plan to have any employees.
A lack of liquidity is the bane of start-up insurance agencies. Most of your income will be straight commissions, and it will take a while for the checks to start rolling in. Meanwhile, you will need money for working capital, operating expenses, overhead and other business expenses.
You must be prepared to support yourself for a period before the checks start rolling in. Unless you have a sufficient sum of capital at your disposal, you may have to secure the necessary funding from a bank, the Small Business Administration (SBA) or a private investor.
If you are insurance professional forging out on your own, keep in mind these tips on how to start an insurance agency. Then go out, hang out your shingle and open your doors for business.
- Small Business Planner
- A.M. Best's insurance company ratings
- Business Start Up Advice
- Small Business Funding
- Business Plan Software