Guide to Starting an Independent Insurance Agency
This guide is for those who have insurance experience, either as a producer or as a captive agent (direct writer agency), and are now looking to start an independent agency. It covers nearly everything you need to know about launching your own independent agency.
A pre-requisite to this guide is at least three solid years of experience in the insurance industry. However, 5 years of experience puts a candidate in a much better position to succeed. Unless you are part of a group that has a contract to provide you with ongoing training and support, starting an Independent Insurance Agency without any experience is very risky.
How difficult is it to start an agency and will you succeed? Well, the answer to the first question is: It is done all the time. Unless you have taken over a book of business, starting an independent agency is easier in some ways than it is to start as a producer or a captive agency. The financial investment, however, will probably be greater.
Experienced insurance professionals like producers or captive agents start most independent agencies because it’s easier to start a business with experience. At that point, you already have the product knowledge, sources, an established reputation, and the confidence to succeed from your first try.
It's a great time to start your own independent agency for several reasons. First, the number of Agency Aggregators have significantly increased in the last 5 years and they want your membership. Second, technology such as Agency Management Systems, is now affordable and makes running your agency very efficient. Both of these items are addressed on in this guide. The marketplace has truly filled the void and what wasn’t available years ago is readily available today. That means it will be easier for you to get an independent agency up and running than ever before.
The start-up expenses for an independent agency should be budgeted and carefully planned for. 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
- Initial Aggregator Fee (not all groups charge this)
- 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 a Partnership, LLC, or Corporation
Before you open your doors, you need to research the costs of the products and services you plan on using and add up all the costs to track. The resulting total start-up cost can range from at least $5000 to $40,000. The lower estimate assumes bare minimal cost situations from finding an aggregator that does not require initiation fees to buying used furniture.
However, finding a group that doesn’t charge a fee may or may not be the best option for your situation. If they don’t charge a fee, they will likely take a higher percentage of your commissions. 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 monthly 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.