Do you want to start an independent insurance agency from home? If YES, here is a complete guide to starting an insurance agency with NO money and no experience.
Okay, so we have provided you an in-depth sample insurance agency business plan template. We also took it further by analyzing and drafting a sample insurance agency marketing plan backed up by actionable guerrilla marketing ideas for insurance agencies. In this article, we will be considering all the requirements for starting an insurance agency. So put on your entrepreneurial hat and let’s proceed.
Table of Content
- Why Start an Insurance Agency?
- Starting an Independent Insurance Agency – Market Feasibility Research
- Starting an Independent Insurance Agency – The Legal Aspect
- Writing a Business Plan for your Insurance Agency
- Detailed Cost Analysis for Starting an Independent Insurance Agency
- Starting an Independent Insurance Agency – Technical and Manpower Details
- Starting an Independent Insurance Agency – The Marketing Plan
- Tips for Running an Independent Insurance Agency successfully
Why Start an Insurance Agency?
Insurance is one of those industries that is largely untroubled by the state of the economy. The reason is that most insurance products are necessary part of modern life. You can’t own a car without automobile insurance, and while your mortgage company may not require that you have homeowners insurance, would you really consider leaving the single biggest investment of your life unprotected?
The individual mandate of the Affordable Care Act ensures that there will always be a steady supply of health insurance customers. Of the major insurance types, the only one that is even considered optional by some people is life insurance — but in today’s more financially savvy world, which is less true than ever before.
In many ways, insurance is no different from any other business opportunity. But it also comes with some more unique considerations. First and foremost among them is the licensing process. In order to sell insurance anywhere in the United States, you must first pass a state licensing exam. Other insurance-specific considerations include gaining appointments from insurance companies so you can sell their products.
But for all the reasons that insurance is a good business to be in, there are many things to consider before taking the leap yourself.
Starting an Independent Insurance Agency from Home With No Experience – A Complete Guide
- Industry Overview
To act as agents or brokers in selling insurance policies and annuities, Industry participants earn commission income, mostly as a percentage of the premium of insurance policies sold. They also earn some fee income for providing risk management consulting and other value-added services. This industry is only composed of independent brokers and agencies.
Companies in this industry act as agents to sell insurance policies and annuities underwritten by insurance carriers. Major companies include Arthur J Gallagher, Brown & Brown, and Marsh & McLennan (all based in the US), as well as Aon, Lloyd’s of London, and Willis Group (all based in the UK), and CNinsure (China).
The global insurance industry, which includes carriers as well as agents and brokers, generates about $5 trillion in premium volume each year. The health and property and casualty segments have seen the strongest growth in recent years, according to Aon.
The US insurance agencies and brokerages industry includes about 132,000 establishments (single-location companies and units of multi-location companies) with annual revenue of about $120 billion. Many companies that primarily offer insurance products to businesses function mainly as brokers. Captive agencies operate as a sales agent for a single insurer, working on its behalf; independent brokers sell products from several providers. Insurance carriers are covered in separate industry profiles.
Starting an Independent Insurance Agency – Market Feasibility Research
- Demographics and Psychographics
Households in all socioeconomic groups across the United States use the services of insurance agencies. Consequently, industry establishments and revenue are distributed in line with regional population. Many people use the insurance agencies firm nearest to them, out of convenience.
When an area is underserved, more firms move into that area to stake a claim in the market. Similarly, firms tend to move locations when competition is too high and profit margins begin to suffer
List of Niche ideas in the Insurance Agency Industry
The idea of creating a niche to grow your book of business for insurance agents is certainly not a new idea. However, It is often heard from insurance agents wanting to find their niche market, but unsure of where to start.
This is a common question as there is no perfect science to establishing yourself as an insurance expert in a particular niche. While that may seem frustrating, discovering a niche market that may work for you only requires four key components.
If you can tie these four components together, you will be well on your way to becoming an industry leader in a niche you love, understand, and provides long-term opportunity. These qualities are Passion, Ability, markets and opportunities. Use these qualities to decide where you can specialize and make a name for yourself
- Insurance program for airlines
- Insurance program for individuals
- Insurance program for farmers
- Health insurance
- Business insurance
- Inland Marine Insurance
- Life insurance
- Property insurance
- Casualty insurance
Level of Competition in the Insurance Agency Industry
Businesses in the insurance industry act as agents to sell insurance policies and annuities underwritten by insurance carriers. The global insurance industry generates about $5 trillion in premium volume each year which goes to show the amount of money and incentives in this industry.
The United States insurance agencies and brokerages industry includes about 132,000 establishments (single-location companies and units of multi-location companies) with annual revenue of about $120 billion.
Demand is related to consumer income and commercial activity. When the economy grows, so does the demand for personal and business insurance. When the economy contracts as it did in the late 2000s; demand for insurance falls. Despite the prominence of large companies in the commercial segment, the US industry remains highly fragmented: the largest 50 firms only hold 25% of the total market.
List of Well Known Brands in the Insurance Agency Business
- American Family Insurance
- American Income Life Insurance Company
- American International Group (AIG)
- Arbella Insurance Group
- Combined Insurance
- Commerce Insurance Group
- Country Financial
- Encompass Insurance Company
- Knights of Columbus
- Liberty Mutual
- Lincoln National Corporation
- Manhattan Life Insurance
- Westminster American Insurance Company
- White Mountains Insurance Group
The Insurance Brokers and Agencies industry experienced subdued growth over the five years to 2016 due to tempered disposable income levels and delayed purchases of homes and consumer durables. The industry has also faced increased competition from underwriters that provide insurance services directly to clients, threatening revenue growth. In the five years to 2021, improvements in car sales, homeownership rates and employment levels are all anticipated to drive revenue.
In addition, the unemployment rate is expected to decline, increasing demand for property and casualty insurance. However, the industry will continue to face pricing pressures from external competition, such as online carriers.
Is an Insurance Agency Worth Starting from Scratch or is Buying a Franchise Better?
One of the primary motivators for owning a franchise is it allows you to go into business FOR yourself, but not BY yourself. That’s because you are buying into a proven business model leveraging an established brand with a built-in customer base. But franchising is not for everyone. Even though you are an owner, you must give up some independence. And it requires a significant capital investment to get started.
Instead of having to reinvent the wheel, a franchisee gets a lot of support from the franchisor right out of the gate, offering a better chance for success. A franchise owner often receives help with:
- Site selection for optimal traffic with consideration for locations of competitive businesses
- Design and construction of physical facilities
- Financing to cover initial franchise fees plus start-up costs
- Training to learn the business and proven operational methods
- Grand opening programs to jump start the business
- National and regional advertising to grow sales
- Routine business operations to maintain best practices for optimal efficiency
- Access to bulk purchasing agreements from approved vendors to hold down operating expenses
- Ongoing supervision and management support if you run into problems or have questions.
All these reasons are why buying into a franchise in the insurance business is far better than starting from the scratch.
Possible Challenges and Threats of Starting an Insurance Agency
Selling insurance is important but challenging work. In a competitive industry that’s changing rapidly, the obstacles are many. The obstacles of starting an insurance agency may include;
- Industry legislation
- The economy
- Healthcare Reform
- Getting licensed
- Start-up costs
- Adapting To Digital Marketing Strategies
- Gaining expertise
Starting an Independent Insurance Agency – The Legal Aspect
- Best legal entity for an insurance Agency
The legal structure of most businesses is based on the size and scale of the business. Since the insurance business is all about the income and property of your clients, the LLC is the best legal entity for your business be it small, medium or large.
The benefits of creating an LLC typically outweigh any perceived disadvantages and are typically unavailable to sole proprietorships and general partnerships.
- Untouchable assets
LLCs provide limited liability protection to their owners (members), who are typically not personally responsible for the business debts and liabilities of the LLC. Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. LLCs typically do not pay taxes at the business level. Any business income or loss is “passed-through” to owners and reported on their personal income tax returns. Any tax due is paid at the individual level.
- Increased credibility
Forming an LLC may help your new tax preparation business establish credibility with potential customers, employees, vendors and partners because they see you have made a formal commitment to your business.
- Limited compliance requirements
LLCs face fewer state-imposed annual requirements and ongoing formalities than S corporations and C corporations.
- Simple management structure
LLCs are free to establish any organizational structure agreed upon by the company owners. LLCs can be managed by the owners (members) or by managers, unlike corporations which have a board of directors who oversee the major business decisions of the company and officers who manage the day-to-day affairs.
- Little or No restrictions
There are few restrictions on who can be an LLC owner or how many owners a LLC may have (unlike S corporations).
Catchy Business Name ideas for an Insurance Agency
There are several business names that you can choose from. However, you have to be sure that it is an attractive name. Some of these types of names include;
- Alligator insurance
- Capitol insurance
- Hilltop insurance
- Dam rete insurance
- A+ insurance
- Concord insurance
- Metro insurance inc
- Welco Insurance
- Cross Town Insurance
The Best Type of Insurance Needed for an Insurance Agency
In order to sell insurance, you need insurance. At the very least you will need a business owner policy (BOP) and E&O insurance. A Business Owner Policy can be customized with a variety of different protections for everything from your equipment to the car you use for business.
E&O stands for errors and omissions and is sometimes called professional liability insurance. It functions in much the same way as medical malpractice insurance in that it protects you from mistakes you might make — that are the errors portion. Omissions are also mistakes you make, such as forgetting to advise a client that their policy is due for renewal.
If you hire office or support staff you may also have to carry worker’s compensation insurance depending on your state and the number of employees you hire.
Finally, you will have to secure a surety bond. A surety bond guarantees to pay one party, such as an insurance company, if you fail to meet your obligation. States require you to have a bond in the event that you collect a client’s premium and run off to Brazil with your receptionist instead of remitting the payment to the insurance company. Its purpose is to protect your clients from you.
Protecting your Insurance Agency Intellectual Properties
Professional service agencies— big and small—are often privy to highly confidential client information. From mergers and acquisitions, to new product or brand launches, agencies are almost entirely in-the-know.
With knowledge of sensitive information that is not only kept from the public, but also sometimes unknown to company employees, agencies receive equal responsibility of risks associated with letting confidential information leak.
The financial and reputational ramifications of intellectual property loss can be huge, especially if it pertains to a product patent, financial transaction or secured trade secret.
To protect your agency from costly mishandling of confidential client information, risk management and mitigation is essential; you need to do the following;
- Legal contracts and non-disclosure agreements
- Hiring team members who conduct themselves in a professional, loyal and discrete manner will help aid the threat of a bragging fail.
- Ensure digital content, including trade secrets, via Internet or internal server, are protected adequately. Ensure confidential content is given to agency employees on a need-to-know basis.
- Always consult a legal professional to ensure your bases are properly covered.
Is Professional Certification Needed to Start an Independent Insurance Agency?
There are professional certifications available regardless of your field which can be found through discussions with those in the industry or by examining job descriptions. Certification can be another way to improve your skill set to be recognized for your accomplishments. In a world of personal branding and marketing, any advantage that helps in landing a client is worth the effort.
- Certified Professional Insurance Agent – CPIA
- Professional Certificate In Insurance – APA
- Chartered Insurance Professional – CIP
- Certified Insurance Service Representative – CISR
- Certified Insurance Counselor (CIC)
- Errors and Omissions (E&O) seminars
- Special Topic Seminars
- Online, Self-Study and Webinars
- Licensing Exam preparation
List of Legal Documents Needed to Start an Insurance Agency
- Credit repair action (power of attorney)
- Client agreement
- Business license
- Employment agreement
- Nondisclosure agreement
- Memorandum of understanding
- Online term of use
Writing a Business Plan for your Insurance Agency
Yes, business plans require a lot of work, research, writing, and careful review. But any time you start a new business, you need to create a business plan. And even established businesses can benefit from having a written plan on hand. That’s because your business plan can help you secure financing and direct appointments.
In addition to giving key stakeholders peace of mind, your plan can help you…
- Set realistic objectives.
- Allocate resources.
- Improve workflow.
- Communicate with partners and other professionals.
- Grow your business.
- Periodically reviewing your business plan is a valuable exercise because it clarifies your business’s goals and how to accomplish them.
Detailed Cost Analysis for Starting an Independent Insurance Agency
Starting your own independent insurance agency requires start-up capital. The amount you will need might range from as little as $5,000 to $50,000 or more, depending factors such as where you’re located and how you plan to operate your business.
For example, starting your agency as a home-based business eliminates the need to pay rent, buy extensive furnishings, signage and other expenses associated with a commercial location. Even the cost of office or storefront space can differ by 100% or more from one locale to another; the difference in price between an office in New York City and one in rural Pennsylvania can differ by 200% or more. The cost analysis of starting a home based insurance agency includes;
- Insurance education courses – $450
- Agency licensing – $1,200
- Buying a Book of Business – $1,500 (minimum)
- Agency Management System – $200
- Insurance – $2,500
- Cluster Group Expenses – $700
- Safety net (miscellaneous) – $2,000
Going by our well researched cost analysis, you will need $8,550 to start a home based insurance agency, thereby costing you $13,478 to start a small scale insurance agency putting into consideration lease and office furniture. It will cost you $46,046 to start a medium scale insurance agency and $103,880 to start a large scale insurance agency.
- Financing your Insurance Agency
Every insurance agency needs specialized financing to support growth. Finance is the elixir that assists in the formation of new businesses, and allows businesses to take advantage of opportunities to grow, employ local workers and in turn support other businesses and local, state and federal government through the remittance of income taxes. The strategic use of financial instruments, such as loans and investments, is the key to success of every business
- Personal savings
- Angel investor
- Venture Capital
- Loans and grants
- Alternative funding source like Crowd funding
Choosing the Best Location for your Insurance Agency
A prospective insurance agent has many concerns: funding, staffing, developing a marketing strategy and ensuring that they have a viable product or service. Before beginning the process of starting a business, however, there is one important decision that must be made: where to start the business.
The adage “Location, location, location” has merit, not only for real estate, but for a successful insurance agency. A variety of features will affect what makes a location suitable or not suitable for your insurance business, and the wise entrepreneur will examine those features carefully before deciding to move forward with a venture.
Many times, the location of the company is decided based on what is good sense for the entrepreneur, with little thought or regard paid to the location of the company. While it is nice to think, “If I build it, they will come!” the reality is that the company that uses the motto, “If I build it where they are, they’ll come” may, in the end, be more successful. A suitable location for your insurance agency must have the following;
- Access to clients and demographics
- Tax and legal incentives
- Office costs
- Staffing needs
- Quality of life
- Access to marketing programs
Starting an Independent Insurance Agency – Technical and Manpower Details
Effective use of technology will be critical to the future success of your agency. It is extremely important for you to stay current with the latest releases your agency management system. Your operating system, software and hardware should be up to date to ensure efficient operation of current applications.
Avail your agency to new company interfaces promptly and use electronic download from the company wherever possible to eliminate paper and improve efficiency. Install Internet access on each agency employee’s desktop with an always on, high-speed connection and an e-mail account for each person. These steps taken together will position the agency to use many emerging real-time technology applications profitably.
Once operational, you need to focus on the security of your systems because the new functionality creates new risks that must be managed. The independent agent’s business model is compelling to insurance consumers because of the agency’s expertise, independence, and multiple company representation. For this business model to excel in the future, however, you must couple these strengths with budgeted, ongoing investments in effective technology.
Customers are impressed with agencies that use the latest technologies. Not only is the agency’s image enhanced, the agency is positioned to meet the consumer’s increased expectations. Consumers expect their needs to be handled on a real-time basis. More and more, the agency’s technological savvy will be a deciding factor for many consumers in choosing an agent. Consumers will want to deal with agents that have the same technological capabilities that they have in their own homes and businesses.
Technology allows an agency to broaden its geographic reach, as a means of growing its business and serving the customer. It also permits agencies to streamline work flows, get work done more quickly, get answers from companies more quickly, and free up agency employees to engage in productive work. Less human intervention because of automated processes means fewer errors and less unproductive rework to correct errors.
Most companies are moving in the direction of streamlining their own processes. They are spending millions of dollars reworking their processes to take advantage of current technologies. In this, they find agents that are able to transact business with them on a similar platform are much more appealing, and are turning away from the days where they tried to be all things to all agents. It is difficult to keep up with standards and technology and stay competitive when they have to do business with old legacy systems and thought processes.
The Service Delivery Process Involved in Running an Insurance Agency
Good processes are the key to success in your insurance Agency. To boost their profitability, agencies make investments all the time in people and technology, as well as in other businesses through acquisitions. There are a number of process improvements agencies might consider. They include improving the workflow, eliminating errors from poor quality, and standardizing processes so that when different people do the task they aren’t reinventing the wheel each time.
Also, profitable agencies segment their accounts to identify their most valuable clients so that they can then provide them a higher level of service than they give smaller revenue or less profitable accounts. Service processes for an insurance agency may include these listed below and a lot more.
- Sales Process
- New Business Process
- Referral Process
- Policy Review Process
- Social Media Process
- Search Engine Optimization Process
- Re-quote Follow-up Process
- Cross-selling Process
- Renewal Process
- Employee Hiring Process
- Employee Training Process
- Employee Termination Process
- Telemarketing Process
- Claim Handling Process
- Policy Endorsement Process
- Billing Inquiry Process
- Customer Complaint Process
- Content Creation Process
Starting an Independent Insurance Agency – The Marketing Plan
- Marketing strategies for an insurance Agency
Good marketing is how you turn cold calls into warm leads. A well-planned marketing strategy helps you generate a customer base that already has your agency’s name in mind when they are considering insurance. Independent insurance agents can’t wait for customers to come to them.
The Web has made it too easy to bypass the friendly, neighbourhood insurance agent and simply choose a big name intermediary. On the other hand, many people want to support locally-owned business like yours. They just need to know you are around.
Increased contact with your community can generate the name recognition and good opinion you need to capture those people. You can promote your agency by:
- Sponsoring events
When you a host charity event or back a local sports team you put your agency’s name in front of the community. Plus, that level of community involvement lets others know you are more than just a salesperson, and many will reward you for it.
- Entering referral agreements
A referral agreement is a mutually beneficial partnership between you and members of your professional network where you share leads with each other. For example, you might share business leads with an accountant who passes their restaurant clients to you.
- Going where your customers are
If you want more contractor clients, where would you go? Probably to the hardware store first thing in the morning; and if you had coffee to share even better! The idea is to think about where the customers you want need to be and get there – hopefully before anyone else.
- Encouraging give-and-take
Charities know that if they give potential donors a gift, they’ll be more likely to give. That’s why so many send address labels or pens with their request. You’ll do even better if you try to connect your giveaway with your insurance product. For example, try handing out smoke detector batteries or emergency contact magnets.
Ultimately, marketing your independent insurance agency is a matter of figuring out what your customers need and showing them how your business addresses that need. Be sure to include your marketing strategy in your business plan, which can help you secure financing for your agency.
Choosing the Right Pricing in the Insurance Services
Competition is forcing insurers to adjust rates more frequently to retain existing customers and attract new ones. Yet many insurers take weeks, if not months, to implement a new rating structure, and the effective performance of these models rapidly deteriorates over time. Inevitably, insurance is changing its approach with regards to product pricing.
As insurance becomes more and more of a commodity, insurance companies are trying to differentiate themselves from their competitors based on customer services, claims experience and financial strength, but mostly by price. Thus, to gain a competitive advantage, insurers are beginning to use price optimization.
Price optimization goes beyond the traditional insurance ratemaking process with sophisticated methods such as predictive analytical models, customer lifetime value calculations and scenario simulation to increase rating accuracy and improve profitability. Although the concept of price optimization is relatively new to the insurance industry, it has been used in other industries, such as travel and retail for a number of years.
Regulations, lack of reliable IT tools and even limited online presence are often mentioned as reasons for its late adoption within insurance. However, relaxed regulations and the growth of aggregator websites mean that price optimization is becoming more of a reality.
To get right pricing for your services you need to implement a price optimization strategy and you should consider these essential components:
- Information management
- Data exploration
- Predictive modelling
- High-performance analytics
- Competitive intelligence
Especially in lines of business where price is a key differentiator – such as auto, home and some commercial lines – price optimization represents the future for insurance.
Possible Strategies of Winning Competitors in the Insurance Industry
Insurance companies are in a unique position when it comes to marketing. They have no tangible products to sell, but must instead rely on strong relationships with loyal customers and word of mouth to help them compete. Still, despite the challenges, the marketing strategies for insurance companies are really no different than for any other company, and require a strong focus on the basics of effective marketing.
- Know your market
- Establish a plan
- Measure Effectiveness
- Gather feedback
- Initiate a competitive advantage
Increasing Client Retention in the Insurance Industry
Insurance agencies can represent a number of products including home, life, auto, business and health insurance. Insurance companies make their money by selling insurance policies and collecting premiums from consumers, and they pay out policy claims when necessary. Retaining customers not only makes the insurance company profitable, it helps offset new customer recruitment advertising and marketing costs.
At the same time, retention can be very cost effective. Many studies have shown that $1 paid towards customer retention increases profits by more than $5 spent on new customer acquisition.
- Identify your best customer
- Develop a proactive business plan for at risk customers
- Personal service
- Discounted rates
- Policy payout
- Explain Benefits and Options
Strategies to Boost Brand Awareness and Create a Corporate identity for your Insurance Agency
Arguably, a formidable presence on the Internet is one of the best ways to get your agency’s name out there and keep it fresh in the minds of prospective clients. You can do that by:
- Creating an agency website
A professional website with an easy-to-remember URL can help your potential clients find you on the web. You might also consider offering to link your commercial clients’ websites to yours. The goodwill they feel may result in referrals.
- Going mobile
People use their smart phones to navigate most of their day. Consider making your website mobile-friendly so it’s always accessible.
- Using social media
Create profiles for your business on Facebook, Twitter, and LinkedIn. These sites are a no-cost way to build brand identity, network with potential clients, and establish professional connections. LinkedIn is particularly useful for reaching commercial clients.
- Creating slide shares, podcasts, and webinars
Part of your marketing strategy should include educating prospective clients about the value of your services and your insurance products. These inexpensive online tools can help you do just that. In your client’s mind, you’ll become their go-to insurance expert.
- Advertising online
The web has plenty of ad space, so do a little searching and sees where your agency may fit. You could sponsor a site, create a banner, or use a pay-per-click ad. But whatever you do, don’t buy pop-up ads – no one likes those.
Keep in mind that your online presence can’t be an afterthought. Customers expect a degree of Internet savvy from the professionals they work with, and that includes their insurance agents
Creating a Suppliers/Distribution Network of an insurance Agency
Many insurance companies use a number of different channels to distribute their products. In the early days of the U.S. insurance industry, insurers hired agents, often on a part-time basis, to sign up applicants for insurance. Some agents, known nowadays as “captive” or “exclusive” agents, represented a single company. Others, the equivalent of today’s independent agent, worked for a number of companies.
At the same time that the two agency systems were expanding, commercial insurance brokers, who were often underwriters, began to set up shop in cities. While agents usually represented insurers, brokers represented clients who were buying insurance.
These three distribution channels (captive agents, independent agents and brokers) exist in much the same form today. But with the development of information technology, which provided faster access to company representatives and made the exchange of information for underwriting purposes much easier, alternative distribution channels sprang up, including direct sales by telephone, mail and the Internet.
In addition, insurers are using other types of outlets, such as banks, workplaces, associations and car dealers, to access potential policyholders. So it is advisable that you learn or pick a point from those distribution channels to be able to create a resounding distribution for your insurance agency.
Tips for Running an Independent Insurance Agency successfully
The decision to go into the insurance business can be exciting and successful as long as you understand the necessary elements that it takes to run one. Everybody needs some type of insurance, whether it is to insure their vehicles, their health or their valuables. Running an insurance business will benefit you financially, but will also provide your customers with a valuable and necessary service.
Choose the types of insurance you will provide in your insurance business. Some offices offer to cover all its customers’ needs, and others choose to focus only on auto, health or homeowners policies. If you decide to limit the type of insurance you will offer, make arrangements with nearby agents who offer other types of coverage. You and your group of agent contacts can send each other business through a mutual agreement.
- Choose a company that you wish to affiliate with in the insurance industry.
- Obtain your state issued insurance license.
- Design your website.
- Develop your customer base.
- Hire at least one staff member to answer phones, take messages and be in the office while you are out selling insurance.
- Maintain your licensing by submitting a new application and fee each year.