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Guide to Starting an Independent Insurance Agency

Guide to Starting an Independent Insurance Agency

By Joseph Totah
President - Strategic Agencies LLC

Overview

This guide is for those who have worked in the insurance industry, either as a producer or as a captive agent (direct writer agency), and are now looking to start an independent agency. It covers almost everything you need to know about starting an independent agency once you have gained producer, captive agency owner or equivalent experience. 

Please note: This guide is not meant for those without any prior experience! Product and basic industry knowledge is crucial. Starting your own agency without such experience is risky. I would highly recommend that anyone wanting to launch an independent agency have at least 5 years experience in the insurance industry.

So here you are, with 5 years of experience, eager to start your own agency. Can it be done? How difficult is it? Well the answer to the first question is: it is done all the time. Most independent agencies are started by producers or captive agents. Unless you have taken over a book of business, starting an independent agency is easier is some ways than it is to start as a producer or a captive agency.  However the financial investment will probably be greater. It’s easier doing something for the 2nd time around. At that point you have the product knowledge, sources, an established reputation and the confidence from succeeding the first time around.

It's never been a better time to start your own agency for several reasons. These include the growth of organizations such as clusters, as well as the combination of available technology and the increasing affordability of such technologies. Both of these items are addressed later on in this guide. The marketplace has truly filled the void; what wasn’t available years ago is available today. That means it will be easier for you to get an independent agency up and running than ever before.

Start-up Costs and Funding

The start-up costs for an independent agency should be carefully planned for and budgeted. If a prospective agency owner does not do this, it can cause the failure of the agency. You cannot afford a lack of operating funds necessary to open the doors and keep the agency running for the first few years. Here is a list of the biggest start-up costs:

  • Agency Management System 
  • Insurance, including E&O, Package, Workers Comp and Bond 
  • Rent Security Deposit and First Month’s Rent 
  • Cluster Initiation Fee and first month payment
  • Office Computers and Printers
  • Office Furniture
  • License costs, including Insurance Agency License and any required business licenses
  • Legal costs if you plan on setting up an Partnership, LLC, or Corporation 

Before you open your doors, you need to research the costs of the services and products you plan on using. Once you make your decisions, you need to add up all the costs. The resulting total start-up cost can range from at least $5000 to $40,000. The lower estimate assumes bare minimal cost situations, including finding a cluster that does not require initiation fees, to buying used furniture.

However, keep in mind that very few clusters waive (or defer) the initiation fee. Of those that do, they will likely demand a much bigger percentage of your commissions and profit. You need to plan ahead of time for what it will cost you to open your agency doors, have enough to pay expenses until you break even, and still have enough in cash reserves to afford your living expenses.

Unless you have a book that you are ready to roll or a system in place that brings in many accounts within the first year, this process can take several years. The next section will talk about ongoing expenses, which you should plan for from the very beginning. You will need to cover these expenses from savings until your commissions can cover them.


For more information about Starting an Insurance Agency, please complete the form on our Starting an Insurance Agency Page