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Starting an Agency Toolkit
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This toolkit is designed to educate and assist in the process
of starting an independent agency, but it is up to you to make it happen. Building
an agency from scratch is possible. If you're successful, the rewards
are considerable, including 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. On the other hand, starting an agency from scratch is challenging.
Following is a short list of critical success factors necessary to make
it:
- Capital – While an independent agency is not
capital intensive relative to other industries, you can expect to need approximately
$40,000 to $50,000 in start-up capital to pay for things such as office space,
equipment and furniture, E&O insurance and marketing; and that doesn’t count
resources necessary to live on while you build your customer base.
- Access to insurance companies – You can get
licensed but you can't sell insurance without access to insurance companies and
managing general agents. For property and casualty insurance, most
companies are looking for a long-term relationship. Getting an appointment usually
requires, among other things, experience in the business, a track record of successful
marketing and selling, a marketing territory geographically desirable to the
companies and a solid proposed business model.
- Good sales and administrative skills – Some people
have great selling skills and can make great insurance producers. Other people
are great at administration and service. Starting an agency from scratch will
require both sets of skills until you get large enough to hire others.
- Thorough technical expertise – Customers are
placing their risk management needs in your hands, therefore you need to understand
the products you're selling. Depending on the lines of business you intend to
offer, there are scores of different policy forms and coverage implications.
Add to that the importance of understanding the risk management process itself,
and you have a very knowledge-intensive profession.
If you're still interested, this toolkit will walk you through the steps
necessary to get started and provide resources to help you implement the steps
where possible.
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Downloads & Links |
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Laying the Groundwork
- Establish a realistic timeline. Starting an agency will take time.
How long it takes 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.
- Obtain qualified legal advice. This is necessary if you're in a current
relationship that may involve non-compete or other contractual-related issues.
- Get an overview of the independent agency system
and an introduction to basic insurance knowledge. If you have operated your own captive agency, you
are ahead of the curve (especially if you were able to establish a book of business
outside the captive market). You understand how an agency works and are versed
in the technical aspects of insurance contracts; however, for as many similarities
between owning a captive agency and owning an independent agency, there may be
just as many differences.
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 Agency
Management Consultants
 Overview of Independent Agency System
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Create the Business Plan
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. This includes carrier prospects for appointments and E&O insurance providers.
The business plan consists of a narrative, resumes and several financial worksheets.
The five things every business plan should address are:
- People – At its core, the
fundamental value of any 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 on
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 a 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.
- 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 with what products and services
and with what advantages over 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.
- 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.
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The risks – Many business plans, especially
those that will be used outside the agency to attract other 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.
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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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Business Plan Outline for a Start-up Agency
 Start-up Budget Worksheet
Cash Flow Budget Worksheet
Annual Production Calculator |
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Meet Legal Criteria
- 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 cost.
- Register With the County or State
All businesses in Texas operating under an assumed name must file an Assumed
Name Certificate with the county clerk's office in the county which the business
is primarily located. Partnerships and corporations must file an Assumed Name
Certificate with the Texas Secretary of State in addition to a separate Assumed
Name Certificate with the county.
- 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).
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Apply for E&O
Prior to applying for an entity license with the Texas Department of Insurance,
you will need to get errors and omissions coverage.
Since this is a new independent agency, and professional liability policies are
on claims-made policy forms, your new E&O policy will have a retroactive
date of the policy inception. In addition, since your agency is new and there
is no previous information to reference, the E&O carriers will essentially
have to underwrite you, as the owner, and your goals for the agency. E&O
carriers will require a business plan and resume with all new applications. IIAT
Insurance Agency is part of a national purchasing group providing E&O coverage
to members. For this reason, IIAT membership is required before your E&O application
can be processed.
- Westport Application
- Helpful
Hints for a New Independent Agency
The association is here to help members succeed. IIAT offers support
through education, insurance market placement, technical advice, governmental
advocacy and agency management support.
- Obtain Licenses
For sole proprietorships, a general lines property and casualty license
is issued to the individual; however, the individual must file a form
to register an assumed name under which he or she will be operating. For partnerships
and corporations, the entity must have a separate license filed with TDI.
- Individual License Applications
- Registering
of Assumed Name
- Application for
Insurance Agency License
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Choose an Entity
Choosing a Form of Entity
Register With the County of State
County Clerks List
Entity Name Registration Application
IRS ID
Sole Proprietorships
Partnerships
Corporations
LLC
E&O
Westport Application
Helpful Hints for a New Independent Agency
Join IIAT
Membership Brochure
Member Services Summary
Agency
Membership Application
Licenses
Individual License Applications
Registering of Assumed Name
Application for
Insurance Agency License
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Secure Market Commitments
Direct appointments with a variety of established carriers that have broad, competitive
insurance products to offer is the ideal situation; however, they are 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.
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Direct Appointments
IIAT's company appointment guide lists many of the insurance companies
that operate through the independent agency system; however, most will only
appoint agents who have some sort of established track record and/or are located
in selected marketing territories. As an IIAT member, you also are a
member of the Independent Insurance Agents & Brokers
of America, giving you access to a number of markets it
provides.
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IIAT Advantage Markets/MGAs/Wholesalers
IIAT Advantage as well as many managing general agents and wholesalers are
receptive to working with new agents. Many will have little or no volume commitments
and are compensated per transaction through policy fees that are passed on to
the customer. The Texas
Surplus Lines Association has information and links to its member MGAs
and wholesalers.
- 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 network's 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.
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Direct Appointments
Market Appointment Guide
Big "I" Markets
Best
Practices for Managing Markets in the Independent Insurance Agency (available
for members only)
IIAT Advantage
IIAT Advantage Markets Overview
MGAs/Wholesalers
www.tsla.org
Best
Practices for Working Relationships Between Wholesalers and Retailers (available
for members only)
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Downloads & Links |
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Choose an Agency Management System
A fundamental building block for today's successful independent insurance
agency is a good agency management system that can provide a framework for all
the necessary business processes. The most effective independent agencies have
maximized the ability to operate as digitally as possible, minimizing double
entry and moving 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,
depending on the level of sophistication you desire. 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 as possible. When you join IIAT, you also
become a member of the Independent Agents & Brokers
of America, IIABA. IIABA sponsors an organization made up of independent agencies,
carriers and technology vendors called the Agents Council on Technology. The
ACT
website has numerous resources to help agencies harness
technology to maximize productivity and profitability.
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IIABA Agents
Council for Technology
Fuller Checklist
Choosing an Agency Management System
Automation Vendors
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Establish Workflow Procedures
In Texas, it is estimated that one in five agents will be involved in
an E&O claim. One of the best ways to avoid this potential is to create and
develop a written procedures manual. This document should be fluid and adaptable
to meet the market and client demands, but should also establish some structured
guidelines to enforce the way you want your business handled. |
 Guide to Agency Business Processes and Information Management
Moberg Group
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Obtain Additional Training – Technical, Management
Depending on your level of industry experience, or your level of expertise
in the various lines of business you intend to offer, IIAT offers a broad array
of training resources to fit your needs.
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IIAT Education Calendar
Personal Lines Essentials
Commercial Lines Essentials
Life and Health Essentials
Producer
Development Program
Leadership Academy
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Recruit Staff
Whether you need staff right off the bat or down the road, recruiting
the right talent for the right roles is not easy, especially if you're doing
everything in the agency yourself. IIAT's Career Center,
featuring a comprehensive Hiring Toolkit and job board, is there to help when
you're ready. |
IIAT's Career Center
IIAT's
Hiring Toolkit (available for members-only) |
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