How to start your own independent insurance agency

How to start your own independent insurance agency

Video How to start your own independent insurance agency

We have dozens of reasons to love the independent insurance industry. We won’t list them all here, but one of the main reasons is that independent insurance agencies offer Texans a wonderful business opportunity: the opportunity to build a business, serve your local community, create jobs, and earn money.

If you are interested in starting an independent insurance agency, your first step is to read this entire page. (be sure to check out the docs too). Your second step is to become an iiat member to gain access to the support you’ll need.

step 1: laying the foundations

Do your research and make the necessary preparations to set yourself up for success.

  1. learn about the independent insurance industry

    If you’ve worked at a “captive” agency, you’re ahead of the game. but there are many differences between captive and independent agencies. if you join iiat, you get access to hundreds of training classes.

  2. set a realistic schedule

    Launching an independent insurance agency will take at least six months. the precise time depends on how much time you spend on it.

  3. get legal advice

    This is especially important if you find yourself in a situation that could have non-compete or other contract-related issues.

  4. raise capital

    Independent agencies are not as capital intensive as many businesses, but you’ll need at least $40,000 to pay for start-up expenses such as office space, equipment, e&o insurance, and marketing. this does not include the money you will need to live on while you build your customer base.

  5. gain access to markets

    You cannot sell insurance without access to insurance companies and general managing agents. most insurance companies want to establish a long-term relationship (especially property and casualty insurance). To get an appointment with these companies, you will need some experience, a sales history, coverage of a desirable territory for the company, and a quality business model. iiat members can gain access to supported standard markets through the iiat benefits program.

  6. a mix of skills

    Some people are great at sales. other people are great at service and management. Starting an agency from scratch, on your own, requires you to have both skills (until you can hire other people to help you). iiat offers training to help you gain the experience you need to excel in insurance.

  7. technical expertise

    Your clients trust you to help manage risk. You must understand what you are selling them. there are dozens of policy forms and coverage implications, and they are updated regularly. the independent sale of insurance is an activity that requires a lot of knowledge. iiat’s clearinghouse provides a detailed database of information on coverage issues, forms and endorsements, and policies.

    step 2: create your business plan

    If you want to build relationships in the insurance industry, and you do, trust us, you need a formal business plan. These are the five things your business plan should include.

    1. people

      You should describe all the people who will work at your agency. Include your resumes, which should describe previous professional experience, skills, and industry knowledge. Without a track record, attracting carriers and customers will be more difficult. If you don’t have much (or any) experience in the insurance industry, mention people you know in the industry. remember, becoming an iiat member is the fastest and easiest way to build relationships.

    2. opportunity

      Explain how you will get customers, what products and services you will offer, and any advantages you have over your competitors. demonstrate, in detail, that you know who your customer is and why they will choose you over your competitors.

    3. the business environment

      show that you understand the broader business environment. describe how your agency will and will be affected by the economy, regulations, labor, supply, customer markets, vendors, competitors, etc.

    4. risks

      don’t paint a perfect picture. Show that you are aware of the risks of starting and running your own agency. the best business plans identify risks and how they will be resolved.

    5. finance (“the numbers”)

      Where will your income come from? be realistic. when will it arrive? how will it be used? insurance companies will want to know your growth projections. At a minimum, you should have an initial budget, cash flow projection, and production forecast.

      step 3: get the legal stuff right

      There are many rules and regulations that apply to operating an insurance agency in Texas.

      1. decide your entity

        You can set up your agency in three ways: sole proprietorship, partnership, or corporation. sole proprietorships are the least expensive and easiest option, but they carry personal liability risk for the owners. partnerships and corporations offer more protection, but setting them up is more expensive and complicated.

      2. register with county or state

        all businesses in texas operating under an assumed name must apply for an assumed name certificate at the county clerk’s office in the county in which the business is primarily located. partnerships and corporations must file an assumed name certificate with the texas secretary of state (in addition to a separate assumed name certificate with the county. keep this certificate handy, as you will need it when you apply for e&o insurance) .

      3. get an irs identification number

        The irs requires an identification number for each entity. this number is used in the administration of tax laws. If your agency is sole proprietorship, your social security number is your tax identification number. If you are a partnership or corporation, you will be issued a Federal Employer Identification Number (FEIN).

      4. e&o insurance

        Your agency will be one of your greatest assets and you’ll want to protect it with bugs & omission coverage. we can help you learn about and get e&o insurance.

      5. obtain licenses

        As a sole proprietor, a general lines property and casualty license will be issued to the individual. but that individual must file a form to register an assumed name under which he will operate. partnerships and corporations must obtain a separate license from the texas department of insurance (tdi).

        step 4: gain access to insurance markets

        Ideally, you’ll schedule appointments with established insurance companies that have comprehensive and competitive insurance products. But that’s hard to do without at least three years of experience and a sizeable business book. For most startups, market engagements come from a combination of some potential direct appointments and/or indirect markets, such as wholesalers, general management agencies, and market aggregators.

        direct quotes = if you become a member of iiat, you automatically become a member of independent insurance agents & brokers of america (big ā€œiā€). this will expand the number of insurance markets available to you.

        iiat advantage = this is the name of the iiat insurance market, which is receptive to working with new agents. learn more about the iiat advantage.

        wholesalers & general agent managers = wholesalers and mgas represent insurance companies. they are receptive to new agents and can offer specialized insurance. many will have little or no commitment, as they retain a portion of the commission and are compensated per transaction through policy charges (which are passed on to the customer). The Texas Surplus Lines Association has information on wholesalers and MGAS.

        market aggregators = these groups help new agents set up their first office, access otherwise inaccessible markets and programs, the opportunity to get direct quotes, and the opportunity to share the profitability of the network. In return, they ask for a commission percentage, a membership fee, or give up a small share of the value of the book of business built through the aggregator. review the contract carefully, especially as it relates to book ownership, commission, revenue sharing, and exit costs.

        step 5: get an agency management system (ams)

        an agency management system (ams) is software that will be critical to the success of your agency. your ams will provide a framework for all your business processes. the most successful agencies operate as digitally as possible.

        Agency management systems range in cost: from $1,000 to $5,000 for a start-up, with monthly fees of $60 to $600. a high quality ams will more than pay for itself over time.

        When you join iiat, you also become a member of the Independent Agents & brokers of america, which has a technology broker council. the act website has resources to help agencies take advantage of technology to maximize productivity and profitability. see iiat partner catalyit for all of their technology solutions.

        step 6: create a procedures manual

        It is estimated that 1 in 5 insurance agents in Texas will be involved in an errors and omissions (E&O) claim. To avoid this, create a procedures manual, which creates structure and guidelines for how you conduct business. its procedures manual should be updated regularly.

        step 7: training

        If you’re going to be successful, especially in the long run, you need to educate yourself regularly. iiat offers its members hundreds of training opportunities.

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