The Opener: Your First 30 Days
Are you ready to start your auto insurance agency? Running your agency requires in-depth knowledge of the auto insurance industry and solid business acumen as well. We have outlined a few tips for your first 30, 60, and 90 days of business starting your agency. The information included in this series will span the spectrum from novice to advanced advice. We hope that agents of varying backgrounds can get something out of this!
Get Your Agency License
It might sound too obvious, but if you're thinking of starting your auto insurance agency, you're probably already individually licensed to sell insurance in your state. That’s fine for a lot of things, but it’s not enough if you plan on starting an agency. If you have plans to expand and incorporate your business, you need a separate insurance agency license, and that comes with a few other pieces of red tape.
Handle all State Requirements
When you open your auto insurance agency, you have a lot of government requirements to handle. You need to register your agency's name, even if you're using your actual/legal name with a DBA. Corporations and partnerships must register for a tax ID number with the IRS. You also need to register your new business with the state and get all the required business licenses. Your state Department of Insurance should be able to provide a checklist of all these requirements. Be sure to run due diligence on this as well, because certain types of business structures come with different levels of liability and protection. In many states, sole-proprietorships and partnerships can save prospective business owners a ton of money, but is it worth opening your personal assets up to potential litigation?
Captive, Independent, Scratch, Book: What does this all mean?
This is required reading if you aren’t familiar with the above terms. Learn them, understand them, and incorporate them into your business plan! The choices you make here will become part of the DNA of your future agency!
Captive Agency: If you choose to become a “Captive Agency” then you, your employees and the whole business will learn, market, sell and write policy for only one carrier. This can be a great option if you know that you want to sell insurance, and you need support in the form of branding, customer-confidence, sales training and national support. Some drawbacks here are that you are stuck with your carrier if you partner with one of the captive brands. Before choosing a captive carrier, think about your local demographic, and make sure you don’t price yourself out of your market. Some captives can only write premium policies!
Independent Agency: More or less the opposite of the Captive Carrier experience. As an independent agency, you will be allowed to carry several different brands/lines all in one house. This can offer a serious benefit to your market, as you can write for carriers that have both loose, mixed and stringent requirements, basically guaranteeing you can write policies for people with varying levels of risk. The negatives here should be obvious. The standard of branding and marketing support will be significantly less than that of the captives. You simply will not be able to write for any of the captive carriers, and finally, you’ll have several sets of guidelines and corporate legalese to wade through every time you add a carrier.
Buying a Book: As simple as it sounds. When starting an agency, you can treat the opportunity just as you might treat starting a restaurant. Sure, you can erect a building, create a brand, menu, find customers - but that’s not easy. You could also buy an existing restaurant (like the purchase of a book) or open a franchise (think - captive carriers). Upon buying a book, you can put money down on a list of clients that an agent/agency is willing to sell at a fair price. Sure, you won’t be in the black on day-one, but find a business that is, and I say - invest now. The book of business allows you to instantly have a connection to clients, a monthly revenue stream, and the opportunity to grow and capitalize off of previous work.
Scratch Agency: This is your standard polar opposite of the “Buying a Book” strategy. You go into the business with zero clients, and you create an inbound and outbound lead generation strategy that funnels potential clients into your sales pipeline. Convert the potentials, sell, upsell, retain, multi-line, repeat. Made that sound easier than it is, huh?
Write Your Business Plan
Establishing your initial budget will help you assess your start-up costs and make cash flow projections. If you're buying a book of business, part of your start-up costs are mostly baked into the purchase of the former agency’s book. If you choose a scratch model, things become markedly unpredictable and complicated. The prospective agent in this scenario should think of herself as an entrepreneur in the most literal sense. There will need to be a healthy amount of operational planning and execution experience required to make this work well! Even if you're thinking of going down the route of starting a captive agency, this will require tons of paid organizational support and many expenses.
If you're opening an independent scratch agency, you should plan for a broad range of start-up costs. In addition to the licensing fees already discussed and the normal expenses of opening any office, such as rent, office supplies, utilities, and payroll, you must arrange for accounting and legal services as well as commercial insurance for your business, including errors and omissions insurance. Also, as you start to purchase and integrate technology into your agency, you need to include those costs in your plan.
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