Many producer agreements come with a non-compete agreement and a non-piracy clause, and nearly all captive insurance agency contracts have such clauses written into these agreements. Such clauses may or may not be enforceable depending on the state laws and other factors. Nearly all non-compete clauses have some sort of time limit — often a year or two. The non-compete clause can cover various items after an agreement is terminated (by either side), including:
- Ability to compete for a client
- Ability to locate within a certain radius or territory
- Ability to compete within a certain time frame
- Phone number ownership
Some states prohibit non-compete agreements to a certain extent. In some cases, a client is not bound by the non-compete agreement and cannot be prohibited from choosing with whom to do business. Nevertheless, if you plan to transition from your current affiliation to your own independent agency, you should proceed with caution. Consult an attorney who is familiar with such agreements in the state(s) in which you do business. A good attorney should also tell you the extent to which you can market to previous clients, such as:
- Contacting your clients
- Sending your clients an announcement
- Re-capturing clients through advertising
Lastly, even if a non-compete agreement is limited to a year or two, this is not a significant amount of time. You can still try to recapture your former clients, especially if you provided quality service and built up positive relationships. Please note that a non-piracy agreement may mean that you cannot take any information, including client information, from your previous employer. In this case, taking client lists may be a violation of your agreement. Nevertheless, in this digital age, it’s easier than ever to locate and market to your former business contacts.
I cannot emphasize enough the importance of hiring an attorney who understands non-compete agreements to help you strategize the legal options of trying to recapture your former clients. For more information on this subject in general, you can visit the Wikipedia Page on Non-Compete Agreements.
Beyond Non-Compete Agreements
It’s not a good idea to count on your previous client base to build your new independent agency, since there are too many obstacles in doing so. They include the non-compete agreement and resistance from some clients, who may not want to make the switch or may not want to make it right away. Nevertheless, your centers of influence, other referral sources, and existing relationships (who were not your previous clients) are usually not affected by any non-compete agreement. You should take full advantage of being an established player in the industry. In addition, running targeted online advertisements to your community is a good way to get the word out about your new business. Most online advertising can be narrowed down to target your local community, such as zip code targeting.
Finally, do what you do best and what you have been doing over the years — hunt for new clients. The Internet makes this process easier than ever. Lead-providing services are abundant and will help you get on your feet. Making new connections with centers of influence, such as realtors, is crucial to getting referrals and having a constant pipeline of leads. There is always the option of joining organizations that you find personally fulfilling and professionally helpful. The bottom line is that you need to reach beyond your existing client base especially during your non-compete period. This will be crucial to making it as an independent insurance agency.
Choosing your Insurance Agency Entity Type
An independent insurance agency can operate as a number of different types of entities, including a corporation, an S-corporation, a limited liability company (LLC), a partnership or a sole proprietorship. For tax purposes, you can be an LLC, but file as an S-corporation. It’s best to discuss the options with both an attorney and a CPA. They will be able to advise you about the best structure depending on how much liability protection you need and which option will minimize your tax liability.
Here is more information on business entity types:
Getting an Insurance Agency License
In most states, there are two levels of licensing, an Agency (or Organization) License and the individual license. “Agency Licenses” are usually for corporations, LLCs and partnerships. Sole proprietorships, for the most part, can be run under the “Individual License” but may not be allowed to add producers under that individual license. You should make sure that you hold all the licenses required to transact business in each state in which you plan to do business. The best way to find out what your requirements are is by going to your state’s insurance department website. You may find a listing for your state’s website by going to AgencyEquity’s State Department of Insurance Directory.
Choosing your Insurance Agency’s Name
An agency may choose any name within the guidelines (if any) of its state’s Department of Insurance. In most cases, owners use their own name, i.e., “William Jones Insurance Services”. This is probably the best way to go in most cases, especially for the name recognition and continuity from your previous affiliation. One exception to this would be if you want to specialize in something and your previous affiliation is irrelevant to your new start-up agency. Use an agency name that will be easily connected with the industry of your specialization, such as “Dental Practice Insurance Services” or “Artisan Contractors Insurance Services”. Another option is to name an agency after the community or region that you serve, such as “Metroplex Insurance Services”. However, this may not be ideal for someone who is established and wants the continuity of his name recognition. As long as you are within your state’s guidelines, you can be as creative as you want to be. However, keep in mind that your agency name should be strategically thought out so that it can work it to your advantage.
Guide to Starting an Insurance Agency Table of Contents
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