You want an insurance agency of your own? You have plenty of work ahead of you, even if you are already a licensed agent. This guide helps you meld your naturally entrepreneurial nature with your love of insurance to get started.
Assuming you are already a licensed agent, you still need a general business license. Your municipality’s local website has details on how to apply. You can operate under your own name or form a business under another name (see #4). Register your name with the state government, too. Then, get a Tax ID Number to file your taxes. As a sole proprietor (also see #4), use your social security number. Partnerships and corporations apply for Federal Employer Identification Numbers. Once you get your Federal Tax ID, your state insurance commissioner’s office has a checklist to register as a resident business entity. That’s how you pay state and local taxes.
Capital or Funding Needed (or Recommended)
Start-up capital is always required for a new business. Some successful agents start with as little as $5,000, while others begin with $50,000 and go short. Your business expenses are as unique as your personal expenses.
For example, starting as a home-based business means no rent, no expensive sign, and you probably already have furniture in your home office. Office and storefront spaces differ as much as the price of houses. An office in NYC can’t even compare to one in rural Texas.
Insurance Protection Needed (E&O) General Liability
An insurance agency needs insurance. Adequate business owner policy (BOP) liability coverage is especially critical if your agency is a sole proprietorship. Some states require Professional Liability Insurance or Error and Omissions (E&O) Insurance to initially register the business.
You need to secure a surety bond. It guarantees to pay if you don’t. This protects your clients if you collect a premium but never remit it to the insurance company.
Knowledge and Experience
To open an agency, you must first be a licensed insurance agent. The standard-bearer designations are:
- Chartered Life Underwriter (CLU) – Life Insurance
- Registered Health Underwriter (RHU) – Health Insurance
- Chartered Property Casualty Underwriter (CPCU) – Property Casualty Insurance
These designations are considered knowledgeable experts on insurance underwriting, administration, and regulations. The coursework to complete these designations provides insurance professionals with an in-depth education in areas such as marketing, administration and underwriting.
Finding an Insurance Mentor
Former Secretary of State Condoleezza Rice suggests searching for role models who take an interest in your career. She warns against being too specific in your requirements. Be clear about what you are looking for and then ask them directly.
- Tell them why you admire them.
- Explain your goals in the mentoring process.
- Describe how you imagine the logistics working.
Legal Structuring (LLC, INC, Sole Proprietorship)
Your business structure determines your personal liability.
- Sole Proprietorship
- Limited Liability Corporation (LLC)
Each has benefits and risks. Sole proprietorships are the simplest structure but carry the greatest personal liability. Business debts can be collected using your personal assets if your company runs out of funds. (Your business insurance should cover this!) Corporations and LLCs create a legal distinction between the agency and you. For more information, check the Choose Your Business Structure article by the US Small Business Administration.
Choosing a Physical Location
You have three options for your location:
- Work from home – no ongoing rent
- Lease commercial space – ongoing rental payments
- Purchase a commercial building or unit – ongoing mortgage payments
Chances are the choice is obvious.
Does it matter if my location is near another insurance agency?
Commercial locations like malls or business centers may limit the number of agents. Otherwise, common-sense rules. Check a map of your area and see where all the agencies are now. Look for a glaring gap. If there isn’t an obvious hole, do what you can to slide between the others. Get as far away as you can and still stay near customers.
Staffing – Hiring and Firing Employees. Keeping Staff Motivated.
In general, an insurance agency includes these basic staffing positions:
Insurance Agent (Producer) – A skilled sales rep who provides quotes, sells policies and renewals, clearly communicates policy information to clients.
Customer Service Representative – Answers inbound calls and follows up on daily agency activities.
Marketing Specialist – The Marketing Specialist conducts market research, creates and edits social media posts and uses paid advertising campaigns to expand brand awareness.
Office Manager – Oversees agency operations, manages staff and reports to the agency owner.
Each role may be filled by one person, or one person may fill many roles in a smaller agency. Most hiring in small agencies is haphazard, yet still seems to mostly work out okay. Post a position on a local job board, field resumes, conduct interviews and add a new team member. Using a specialized recruiting agency, even with fees, often pays off for jobs requiring higher qualifications.
Motivation waxes and wanes in most lives but can be even more challenging to maintain in a small insurance agency. Making agency goals and setting individual goals helps keep staff motivated. Setting rewards has a greater impact than the reward may seem to warrant. The promise of a staff dinner at a favorite restaurant or an all exclusive paid trip keeps spirits up for months!
Finding New Clients and Keeping Current Clients Happy
Finding new clients has a gazillion approaches. An online presence includes:
- Social Media
Offline marketing includes even more components.
- Cold calls
- Print publications
- Speaking engagements
- Direct mail
- Trade shows
- Buying leads
Once you contact a new lead, your sales process takes over. Modern clients expect ongoing communication, usually through occasional email or Social Media marketing. Renewals become automatic with ongoing relationships.
Getting referrals from clients
The biggest reason insurance agents don’t get referrals from their clients is because they don’t ask. It feels uncomfortable, so it is all left unspoken. When is the best time to ask? Right after a client signs on the dotted line. A new client, or a renewal, at the time of the decision, has a positive attitude and is most likely to make a referral right then.
What do you say? Try something like, “If a friend of yours walked into the room, right now, would you introduce me… knowing that I would likely talk to them about their insurance needs?” Once they agree, ask, “Would you send a text message to those people and let them know I might be able to help them?” Then, follow up in a few days.
Even if the client says they know absolutely nobody, you have precisely the same number of referrals you had without asking. Zero. Ask. There is no harm in asking!
Marketing Tips – What Works and What Doesn’t
Marketing includes many elements, but time and money constraints make it impossible for most agencies to do everything. Here’s what works best
Social Media – Your Facebook, Twitter, LinkedIn, Google, and YouTube accounts demonstrate how you are different from the competition to your current and potential clients.
SEO – SEO is essential. Small agencies may struggle to rank and compete on Google with local agencies and national brands, but the time, money and effort are worthwhile.
NOTE: It can take up to 12-months to see substantial results!
Networking – Get out and be seen! Go where your clients are.
Building referral partners with realtors, lenders, bankers – Use your networking skills and opportunities to build referral partners. The Chamber of Commerce and other national or local business organizations help developed cross-industry connections.
Volunteering helps develop your standing in the community. Although it is impossible to measure the effects short-term, long-term, your reputation is critical.
Adapting to market trends – Some trends move quickly and pass by without much impact on the core of the market. Other trends take root and change how the foundation of the industry works. Don’t sway in the wind with fancy trends but it is vital to recognize a trend when it is here to stay (i.e. SEO, Social Media, etc.)
Technology – Software, Agency Management Systems and Quoting Systems
Automate everything possible. Invest in top-rated agency management software. Use it to track prospects and to provide ongoing service to current clients. Look for the option to access multiple carriers in online applications to save paperwork, time and stress.
The software keeps you in compliance with your state laws and helps facilitate marketing, customer service and sales. Software packages leased for between $50 to $350 a month, depending on the features.
Insurance Carrier Appointments
You can’t sell any insurance without access to the insurance companies. These insurance carriers want long-term, profitable relationships. Getting appointed requires:
- Experience in the insurance business
- A solid business plan
- Proven track-record marketing and selling
- Geographically desirable territory
Ideally, secure a direct appointment with an established carrier to offer competitive products, with a solid commission schedule. For a new insurance agency, direct appointments are difficult to secure, since most carriers prefer experience, a track record and a book of business.
General Insurance Sales? Auto, Home, Life or Business?
Answer these questions:
- Do you already have a focus with your clients?
- What do your most dreaded competitors do?
The day you open your new agency is not the first day of your insurance career. You will have enough changes to cope with, don’t change your selling focus. Yet, at least. Unless you are competing with a dreaded competitor that makes it impossible to imagine your market share. Even then again, maybe later.
The most common reason clients do not take advantage of the opportunity to purchase more than one policy from their agent. They were never asked. Create packages, discounts, and incentives for clients. More importantly, create bundles and discounts and incentives so you (and your staff) feel comfortable asking. Offering a discount is easy. Make cross-selling opportunities as easy as possible.
Starting from Scratch or Joining a Cluster (IMO)?
An insurance cluster is a formal association established to provide group benefits and mutual support. When you join a cluster, the benefits include cost savings to help build your business and profitability more quickly. You may get new leads, products and resources, like marketing, technology and or staffing assistance.
Insurance clusters negotiate deals with major insurance carriers. The perks they offer vary, as do the membership requirements. The biggest concern may be your ability to join. Not every cluster accepts new agents. Others restrict you until you reach various achievement and experience levels. There may also an initiation fee of several hundred to thousands of dollars plus an ongoing membership fee.
So, should you join a cluster? Research to see what is feasible and then decide. There is no easy answer.
Writing Business and Marketing Plans
You may be asked for a business plan. Perhaps by your bank or insurance carrier with your appointment request. Chances are your marketing plan is shared between you and your territory marketing representative.
Both plans should always be a work in progress. Your business evolves over time with influences like the economy and market trends. Successful companies maintain current business plans to follow each element that affects continued growth.
When Can I Expect to be Profitable?
It would be nice to start making money the day you open your doors for business. Experience suggests that it takes some time to start generating enough income to become self-sustaining. So, allow at least a few months of cash reserves in your startup costs. Setting aside cash for rent, salaries, utilities, marketing and any other expenses reduces stress and makes it easier to do your job. It is hard to sit across the table from a client when you are worried about being forced to go out of business even before you really get started.
When is it a good time to expand operations?
Seldom does any agency expand operations too soon. Here are the signs it was probably a good idea to expand a few months ago:
You Lose Time on Nonessential Tasks – Every day, the work backlog is bigger than it was the day before. Administrative duties bog down critical revenue-generation activities. Marketing and sales usually suffer first.
Customer Service – Customer service complaints about long wait-times are a huge clue. Are ongoing customer service efforts going by the wayside? Emails, letters, Social Media? Are renewal rates down?
Staff Overworked – Assume your staff does their best to keep up, and then ask. It should be obvious when employees struggle with the demands of their jobs. Look for increased stress, a lack of attention to detail, time off requests, or increased sick days.
Check the books to make sure you can afford to expand. A conversation with your accountant is in order. Hiring more staff helps tackle tasks more efficiently but your budget is critical. Consider hiring freelancers or outsourcing by contract for specific projects to take the load off staff without taking on more employees.
Building and Maintaining Company Processes
Every insurance agency revolves around a multitude of processes:
- New Business
- Policy Reviews
- Search Engine Optimization (SEO)
- Re-quote Follow-ups
- Social Media
- Handling Claims
- Policy Endorsement
- Billing Inquiries
- Customer Complaints
- Content Creation
Read over this list again, carefully. Think through your processes. Is each process formalized? If not, what problems does that create? Many agents find it worth their time to think through these processes and write out the steps. If you have staff in charge of some of the processes, ask them to write out the details.
Once you have the steps, it becomes easier to look for ways to save time and money. Ask yourself, “How could we improve the efficiency of this process?”
Why Insurance Sales is Lucrative
The US Bureau of Labor Statistics explains opportunities for insurance agents grow faster (10%) than for average (7%) jobs. Not a wonder, since our nation is dismally underinsured. More than 40% of Americans have no life insurance of any kind!
Why the high turnover in insurance sales?
Insurance sales is fiercely competitive. Perhaps enough in itself. Also, insurance sales require a unique skill set that not everyone develops. The outgoing, friendly nature making connections and “putting yourself out there” oppose the other side of the agent equation. Agents must be detail-oriented, conscientious and focused, too. Many agents fit one side of the equation and not the other, so they find another type of work suits them better.
Pay for producers
US Bureau of Labor Statistics reports median wages for insurance agents as $48,150 annually. The 10 percent highest paid agents earned over $116,940 a year. The 10 percent lowest paid earned less than $26,120.
As an independent agent, your time is your own. Maybe. Like other entrepreneurs, you put in extra hours many days, at least at the beginning. Over time, your business becomes self-sustaining and you can step back. Or you could step back if you are so inclined (many are not!)
Building a Profitable Book of Business
Over time, you develop a clientele with regular renewals. A book of business refers to these clients and their policies. Every year, your book grows. While you are active, this book forms your income. When you choose to step back, this book forms the value of your company or your legacy for succession planning.
Selling a book of business – What is it worth?
Your book of business is valued based on annual gross commission. A book valued at 1.5X means the book is valued at 1.5X the annualized gross commission.
Receiving Payment for Your Book of Business
|Lump-Sum Payment||Payments Over Time||Payments as Earned|
|Low Value||Mid Value||High value|
|Cash Up-front||Payments Guaranteed||Payments not Guaranteed|
|Riskiest for Buyer||Risky for Buyer||Not Risky for Buyer|
Payments for a book of business rage from 1X to 2.5X or even higher, depending on the method of payment and the buyer’s motivations.
Lump-Sum Payment – You earn a lower multiple, likely 1.5X to 2X. If you want the money all at once, this is a good choice.
Payments Over Time – Guaranteed payments, like a pension, are a sure thing. Even if your buyer loses all the business, they still owe every penny over that time.
Payments as Earned – A lot less risky for the buyer, since if the book doesn’t earn any money, there are no payments. But if the business grows, it earns more. This book may be valued at 2.5X+.
Succession Planning for Agents Ready to Retire
Succession planning is like retirement planning. It needs to be completed before it’s time. Succession planning you start on your 64th birthday when you plan to retire at 65, is too late. Any path must begin at least 5 years before the transfer date. At least.
Gen X and Millennial buyers could be your best solution. Some Baby Boomer agency owners choose to go with large national brokers or private equity firms instead of these younger buyers.
Although not mirroring your expectations, these next-generation owners may mirror closer to your customers’ expectations. So, begin the succession planning process well before you even consider retiring.
The two key reasons succession planning is such a problem?
- The next generation of leaders is not being trained.
- There are no well-established transition plans.
Find your successor, train them, and develop a strategic plan. Be proactive. Choose your destiny and maximize the value of your insurance agency.
Starting and maintaining an agency requires dedication, motivation and ambition. Most importantly, your ability to connect with your clients and your community drives your success. As an outstanding member of both the insurance industry and your neighborhood locale, you can earn an excellent living while you do what you love.
There is plenty of work ahead of you, but you can have an insurance agency near me of your own. This guide should help you collect your entrepreneurial talents to get started.