Starting an independent insurance agency can seem like a daunting task. Where do I begin? How do I get licensed, find insurance companies to represent, open an office, and hire people? If you are reading this, it means you are considering embarking on this journey. While there are many challenges that will face you there are also many rewards that will await you, such as the ability to call your own shots, a healthy return on investment in the form of owner's equity and the satisfaction of being in a business that protects people and their valuables. We hope that you will use the following ten steps to assist you in your journey to opening your own independent insurance agency.
STEP 1: THE GROUNDWORK
How to Get Started - Laying the Groundwork
- A. Establish a realistic timeline. Starting an agency will take time. How long depends on your situation and how much time you have to work on it. It almost always takes more time than you think it will. Expect at least six months to arrange financing and two weeks to obtain E&O Insurance.
- B. Obtain qualified legal advice. This is necessary if you're in a current relationship that may involve a non-compete agreement or other contractual issues. IIAG members are entitled to a legal consult each calendar quarter at no additional cost by the Association's attorney, Mark G. Burnette, who is with the law form of Joyner & Burnette, P.C. Additionally, Mr. Burnette is available to handle legal work for members of the Association at his standard rates, which include both flat fee and hourly rates depending on the work to be done.
- C. Capital - While an independent agency is not capital intensive relative to other industries, you will need start-up capital for things such as office space, furniture, computer equipment, Errors and Omissions Insurance and marketing. You will also need to consider an operations and/or trust account. Also realize that it takes some time to build your business so you will need money for living expenses as you grow your agency.
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STEP 2: THE BUSINESS PLAN
Five Things Every Business Plan Should Address
We will not bore you with the not planning is planning to fail lecture, but just about every industry relationship you need will require a formal business plan. The business plan consists of a narrative, resumes and several financial worksheets. Your business plan should address the following:
- A. People - At its core, the fundamental value of an agency is in the capability of its people to execute its objectives. Therefore, your business plan should include information about the people who are responsible to execute it. At a minimum, include resumes of each of the key players that describe the professional and personal background relevant to the agency business as well as the knowledge, skills and abilities possessed by each. For start-ups, a lack of demonstrated track record may inhibit your ability to attract prospective employees, customers and carriers. To mitigate this uncertainty, include an explanation of who you know and how you may be known in the community and/or industry
- B. The Opportunity - A key to agency success and of interest to all current and potential stakeholders is how the agency plans to acquire customers, including competitors. This section should demonstrate that you know who your customer is, what your products and services are and how you will position your products and services to be selected over those of your competitors.
- C. The Business Environment - Your business plan should demonstrate that you have a keen awareness of the external business environment in which you operate, that you understand its impact on your business prospects and how you will navigate and exploit it. The discussion should encompass regulation, the economy, labor supply, customer markets, suppliers, competitors and in what way the status of these factors is relevant to the operation of your agency.
- D. The Risks - Many business plans, especially those that will be used outside the agency to attract stakeholders, often make the mistake of painting only a rosy picture; however, risk is inevitable. The best business plan readily identifies and confronts the risks to be faced. Potential stakeholders, especially prospective carriers, will develop confidence in those agencies that pose the risks and provide strategies to resolve them.
- E. The Numbers - You need to have realistic expectations of where revenues will come from and when and how cash will be used; furthermore, insurance carriers will be interested in growth projections. At a minimum, you should have a start-up budget, a cash flow forecast and a production forecast.
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STEP 3: LEGAL CRITERIA AND E&O
Licensing, Registration, Tax ID, etc. - Meeting Legal Criteria
- A. Obtain Licenses - You need to be licensed in order to sell insurance. You will be required to take a certain number of hours of training as well as sit for a licensure exam. In most states, you will need a licenses for each type of insurance that you wish sell. Pre-licensing, licensing and continuing education are state specific so if you intend to sell to clients in multiple states you will need to consider the requirements in each are you choose to do business in. The rules on the sale of insurance and consumer protection information can be found at National Association of Insurance Commissioners. Sole proprietorships, partnerships and corporations are required to obtain a resident insurance agency license.
- B. Choose an Entity - There are three broad categories to investigate when determining your business organization: sole proprietorships, partnerships and corporations. While sole proprietorships are the least expensive and easiest to create, they carry a risk of personal liability for the owners. Partnerships and corporations can afford further protection for the owners, but require more paperwork and expense to create.
- C. Obtain IRS ID - The IRS requires a Taxpayer Identification Number for all entities. This number is used in the administration of tax laws. If your agency is organized as a sole proprietorship, your social security number is your tax identification number. If your agency is organized as a partnership or corporation, you are given a Federal Employer Identification Number (FEIN).
- D. Apply for E&O - Prior to being appointed with an insurance company, you should get Agents Errors and Omissions coverage. When completing an E&O application for the new independent agency, include information on any business you are bringing with you or use estimations and predictions of the business you plan to write over the next 12 months. The E&O carriers will also require a business plan and resume. Since this is a new agency, they will not have the history on the books to underwrite, so they will underwrite you, as the owner, and your goals for the agency. IIAG Members may choose from different E&O options, however Swiss Re Corporate Solutions and FIreman's Fund are IIAG's recommended carriers. Both policies are rated "A+ Superior" by A.M. Best and includes the E&O Happens website, an exclusive comprehensive risk management website include practical information and tolls to help your agency avoid E&O claims. Additionally, IIAG members receive an exclusive consultation each calendar quarter with Eric Moberg of The Moberg Group, at no additional cost.
STEP 4: ACCESS TO INSURANCE MARKETSSecure Direct Appointments and Indirect Markets
Direct appointments with a variety of established carriers that have broad, competitive insurance products to offer is the ideal situation and very hard to come by unless you have at least a three-year track record and a sizable book of business that you will bring to the table right off the bat. For most start-ups, market commitments will have to come from a combination of a few possible direct appointments and/or a variety of indirect markets such as wholesalers, managing general agencies and market aggregators. First you may want to prepare an appointment package which would consits of copies of your agency license, producer license, E&O declarations page, bank accounts (trust and operating), Flood certification if applicable and voided checks.
- A. Direct Appointments - As an IIAG member, you also are a member of the Independent Insurance Agents & Brokers of American, giving you access to Big I Markets and Big I Eagle Agency, both of which provide you with easy access to top-rated carriers with low/no volume commitments and NO FEES. You also have access to the Big I Flood Program.
- B. IIAG Partners in Progress - IIAG Partners in Progress was created for companies, wholesalers and vendors that wish to gain exposure to IIAG members and support the Association. IIAG Partners in Progress consists of over 100 companies looking to help Georgia's independent insurance agents achieve more collectively that they can individually.
- C. Market Aggregators - Market aggregators provide assistance to new agents in setting up their first agency office, access to otherwise unattainable markets and niche programs, the opportunity to obtain direct company appointments and a chance to share in the networks profitability. In return, these networks usually ask agents to pay a percentage of commission, a membership fee, or require them to give up a small stake in the value of the book of business built up through the aggregator. Be sure to review the contractual relationship with these entities carefully, especially as they relate to book ownership, commission or revenue sharing and exit costs.
STEP 5: AGENCY MANAGEMENT SYSTEMFramework for the Necessary Business Processes
* A. Choosing an Agency Management System
A fundamental building block for today's successful Independent insurance agency is a good agency management system that provides a framework for all the necessary business processes. The most effective agencies have maximized the ability to operate as digitally as possible, minimizing double entry and handling paper. Agency management software can range in cost from less than $1,000 to $5,000 for a start up operation with monthly fees of $60 to $600. It is advised that a new agency should not skimp on agency management software since it will pay in the long run to operate as electronically and efficiently as possible. With this in mind you want to make sure the system fits" your agency. When you join IIAG you will also become a member of the Independent Insurance Agents and Brokers of America (IIABA) They sponsor an organization made up of independent agencies, carriers and technology vendors called the Agents Council on Technology (ACT). The ACT website has numerous resources to help agencies. You will find vendor comparisons for both hardware and software and checklists to be used in making your decisions. This will help maximize productivity and profitability. Examples of information provided through ACT are:
*B. Workflow Procedures
It is estimated that one in five agents will be involved in an E&O claim during their career. One of the best ways to avoid this exposure is to create and develop a written procedures manual. The procedures should be adhered to by all employees. This document should be concise and adaptable to meet the market and client demands, but should also establish some structures guidelines to enforce the way you want your business handled.
In addition to procedures for Errors & Omissions Loss Control, agencies will be wise to have written workflows of the agencies processes. These will enable you to assess where you are as well as where you are going in the automated world. Best Practices will provide self assessment tools to give you a base from where to start as well as instruction on how to get to the next step.
The information provided by ACT and the Best Practices will give an agency the tools to develop their own manuals to protect and lead the agency into developing procedures to protect from unnecessary errors and omissions claims. From the links below, you will find these websites provide numerous articles and checklists.
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STEP 6: BRAND YOUR AGENCY
Use the Internet and Social Media to Enhance Your Agency's Visibility to Others
You will need to develop a website for your agency since the majority of insurance consumer's today begin their search for insurance on the Internet. IIAG has optional recommended vendors for high quality, affordable website development and hosting. Once you have built a website for your agency, you should also consider incorporating social media and digital advertising into your overall marketing strategy to enhance your agency's online and in visibility in your local community. As a member of IIAG you can access Trusted Choice database of pre-made consumer marketing materials including articles, social media posts, and infographics to share with potential and current clients.
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One advantage of your membership in IIAG is branding through Trusted Choice. Trusted Choice is designed to amplify your local marketing and highlight the value your agency brings to consumers. As a Big "I" member you automatically get access to materials that will benefit your business and provide you with consumer leads, and enhance your bottom line.
A. Referrals On www.TrustedChoice.com, consumers can search for local independentagents in their area and also begin the online quoting process, which can drive additional business to YOU. TrustedChoice.com also offers digital marketing resources for agencies looking to expand their Internet presence through social media and their websites. There are several different packages with varying levels of service and benefits.
B. Marketing As a member of IIAG you can connect your Agency brand with the National branding power of Trusted Choice by accessing a variety of logo options for use on website, print and other marketing efforts. Trusted Choice will also customize a campaign and in your preferred format of choice, from radio, TV and various print marerials. Trusted Choice will reimburse a portion of your marketing expenses for co-branding and in creating or updating a ditigal prescense (website) to include the Trusted Choice logo.
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STEP 7: TRAINING AND CE
Obtain Additional Training Technical, Management, and Industry
Depending on your level of industry experience, or your level of expertise in the various lines of business you intend to offer, IIAG and the Independent Insurance Agents and Brokers of America offer a broad array of training resources and career paths to fit your needs. We will be glad to answer any questions you might have regarding your prelicensing or continuing education needs. Classes are provided both in house and in classroom and in addition we offer online CE through ABEN.
Licensees must complete 12 hours of CE every two years in the line for which the license is held with at least 1 hour in ethics. (Licensees holding multiple authorities Life & Health and Property & Casualty must complete 24 total hours with 50% of the hours in Life & Health and 50% of the hours in Property & Casualty courses -- this must include 2 hours of Ethics training.)Credit earned from generalcourses is acceptable in meeting Life & Health or Property & Casualty requirements.
IIAG offers our members an opportunity not only to complete these required hours, but also to obtain professional designations in the process.
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STEP 8: RECRUITING THE RIGHT STAFF
Whether you need staff immediately or later, you will find the agency in need of additional help. Recruiting the right talent for the right position is not easy; however, we offer several tools to help in this effort. When needing job descriptions or professional assistance in your recruiting efforts, the following sites should assist you.
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STEP 9: NETWORK Developing the Relationships you Need to be Successful
A. Get Involved in Your Local Community
Agents who have successfully started a new business will tell you that it is important to become involved in your local community. This can be done in a variety of ways: through membership in your local Chamber of Commerce, by joining a civic organization such as Rotary or Jaycees or by becoming active in your place of worship. Insurance is a relationship business, and building relationships in your local community can be a factor in the success of your new agency.
B. Attend an IIAG Event
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STEP 10: JOIN IIAG
Membership in the Georgia Association of Insurance Agents offers the new agent not only access to Errors and Omissions coverage, our market access programs, political advocacy, and a variety of other member benefits and services, but it also makes you a part of a family of other Independent Agents throughout the state.
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