New Agency Toolkit 

2. Create 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. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

3. E&O and Legal Criteria - Licensing, Registration, Tax ID, etc.

  1. 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.
  2. 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.
  3. 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).
  4. 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
  5. 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.

4. Access to Insurance Markets - Secure 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; 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.

  1. 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.
  2. 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.
  3. 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.

5. Agency Management System - Framework for all the necessary business processes

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.

6. Workflow Procedures - Develop a written procedures manual

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.

7. Additional Training - Technical and 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.