How to start my own insurance company

With so many successful insurance companies out there right now, you are probably thinking about whether there is enough space on the market for your insurance company. Here are some actionable steps you can take to start your own insurance business:

How much capital do you need to start an insurance carrier?

Depending on the state you live in, there are a few things to consider regarding how to start an insurance carrier. There are necessary steps involved, including a cleared background check and sufficient funds to be resourceful. Anybody can become an insurance agent, and educational experience is not required in most cases.

Opening an insurance agency is profitable, but the salary range varies. This depends on whether you work for an insurance agency or start your own. Working for an already existing agency brings in around $50,000 per year; however, extremely successful can earn up to $100,000 per year. 

You can earn this type of income on your own as well, but there are additional struggles involved. Such as gaining your own clients, doing your own marketing, and funding your own business.

How much does an Allstate agency owner make?

When an insurance agent works for a well-known insurance company like Allstate, the average salary is around $70,000 per year.

Is buying an insurance agency a good investment?

Buying an insurance agency is a good investment if you have the resources to support it. However, you will need to be ready to lose money before gaining any. Additionally, you need to hire sales staff, agents, tech people, and more. 

Steps to make your own insurance company

• Make a business plan and set your goals: It’s important to set a business plan which includes mitigating potential risks, obtaining substantial funds and resources to sustain the business, assigning responsibilities to staff, and what sets your insurance plans apart from the competition.
• Obtain Licensing: You must obtain specific business-related permits and licenses to operate as a legal business entity. 
• Determine Legal Structure: You can operate as a corporation (C Corp or S Corp), LLC, Partnership, or even a Sole Proprietorship
• Find a name: Decide on the assigned business name.
• Obtain a Tax ID: Register your business to obtain a Tax ID number.
• Find an office and get all the permits: Find the physical location your business will operate from.

Do I need insurance to run my own insurance company? 

As with all other businesses, you will need to purchase insurance for yours as well. Insurance for businesses will cover areas such as liability insurance, especially when you are an independent insurance agent. The type of liability you need to be covered for includes General Liability Insurance plus Errors & Omissions Insurance; these protect you from customer lawsuits from possible errors. Then, if you acquire a physical location for your insurance company, you will require property insurance to cover damage to the property. Lastly, auto insurance is also essential if you have any vehicles used for business by agents.

How much money can you make owning an insurance agency?

Buying an insurance agency can be costly, and there are many things you need to consider before doing so. You need to consider the profits you earn from existing clients—be sure not to overtake a business that may be available due to failure. 

There are extra costs involved when it’s your company related to paying staff, renting the physical building, insurance for your business, marketing costs, and more. However, depending on the business’s success, you can earn a decent profit by calculating client revenue minus the mentioned costs of running the business. 

Do insurance agency owners make good money?

Insurance agency owners make a decent living based on the revenue brought in by selling insurance to clients. Remember to note that buying a business can cost anywhere from $50,000 to $300,000. The insurance business has been increasingly profitable. It’s estimated that an insurance business owner can earn $50,000 to $110,000 per year.

In conclusion

Is it worth trying? Once you’re aware of what’s involved in becoming an independent insurance agent or working for a company, it depends. Of course, there are great risks involved in making any investment, but to purchase or start your own company comes with additional factors. 

To start, the financial resources you should have must be enough to sustain the launch of a business. Starting with a good business plan is very important; from potential clientele to making your offer unique amongst existing competitors, and ensuring that you can see the revenue outweighing the costs that add up after years of being open might take external consultations with experts. Be mindful of these important issues before you decide.

Step 1: Lay the Groundwork

Do the research and make the necessary preparations to set yourself up for success.

1. If you have worked at a “captive” agency, you’re ahead of the curve. But there are plenty of differences between captive and independent agencies. If you join IIAT, you get access to hundreds of training classes.

2. Launching an independent insurance agency will take you at least six months. Precisely how long it takes depends on how much time you devote.

3. This is especially important if you are in a situation that might have non-compete or other contract-related issues.

4. Independent agencies aren’t as capital-intensive as many businesses, but you will need at least $40,000 to pay for your start-up expenses—e.g., office space, equipment, E&O insurance, and marketing. This doesn’t include the money you’ll need to live on while you build your customer base.

5. You cannot sell insurance without access to insurance companies and managing general agents. Most insurance companies want to establish a long-term relationship (especially property and casualty insurance). To get an appointment with these companies, you will need some experience, a track record of selling, coverage of a territory that’s desirable to the company, and a quality business model. IIAT members can get access to standard admitted markets through the IIAT Advantage program.

6. Some people are great at sales. Other people are great at service and administration. To start an agency from scratch, on your own, requires that you have both skills (until you can hire other people to help). IIAT offers training to help you gain the expertise to excel at insurance.

7. Your customers are trusting you to help manage risk. You must understand what you’re selling them. There are scores of policy forms and coverage implications, and they are regularly updated. Independent insurance sales is a knowledge-intensive pursuit. IIAT's InfoCentral provides an in-depth database of insight on coverage issues, forms and endorsements, and policies.

Step 2: Create Your Business Plan

If you want to create relationships in the insurance industry—and you do, trust us—you need a formal business plan. Here are the five things your business plan must include.

1. You need to describe every person who will work at your agency. Include their resumes, which should describe past professional experience, skills, and industry knowledge. Without a track record, attracting carriers and customers will be more difficult. If you don’t have much (or any) experience in the insurance industry, mention the people you know in the industry. Remember, becoming a member of IIAT is the quickest and easiest way to build relationships.

2. Explain how you will get customers, which products and services you will offer, and any advantages you have over your competitors. Demonstrate, in detail, that you know who your customer is and why they’ll choose you over your competitors.

3. Illustrate that you understand the larger business environment. Describe how your agency will impact, and be impacted by, the economy, regulations, labor, supply, customer markets, suppliers, competitors, etc.

4. Don’t paint a perfect picture. Prove that you are aware of the risks of starting and running your own agency. The best business plans identify risks and how they’ll resolve them.

5. Where will your revenue come from? Be realistic. When will it arrive? How will it be used? Insurance carriers will want to know your growth projections. At a minimum, you should have a start-up budget, a cash flow projection, and a production forecast.

Step 3: Get the Legal Stuff Right

There are many rules and regulations that apply to operating an insurance agency in Texas.

1. You can set up your agency in three ways: sole proprietorship, partnership, or corporation. Sole proprietorships are the least expensive and easiest option, but they carry the risk of personal liability for the owner(s). Partnerships and corporations offer more protection, but setting them up is more expensive and complicated.

2. All businesses in Texas operating under an assumed name must file for an Assumed Name Certificate with the county clerk’s office in the county in 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. Keep this Certificate handy as you’ll need it when you go to apply for E&O insurance).

3. The IRS requires an ID number for every entity. This number is used in the administration of tax laws. If your agency is a sole proprietorship, your social security number is your tax ID number. If you’re a partnership or corporation, you’ll be given a Federal Employer Identification Number (FEIN).

4. Your agency will be one of your greatest assets and you’ll want to protect it with errors & omissions coverage. We can help you learn about and get E&O insurance.

5. As a sole proprietorship, a general lines property and casualty license will be issued to the individual. But that individual must file a form to register an assumed name under which he or she will operate. Partnerships and corporations must get a separate license from the Texas Department of Insurance (TDI).

Step 4: Get Access to Insurance Markets

Ideally, you will schedule appointments with established insurance carriers that have broad, competitive insurance products. But that’s difficult to do without at least three years of experience and a sizable book of business. For most start-ups, market commitments come from a combination of a few possible direct appointments and/or indirect markets, such as wholesalers, managing general agencies, and market aggregators.

Direct Appointments = If you become an IIAT member, you automatically become a member of the Independent Insurance Agents & Brokers of America (Big “I”). This will expand the number of insurance markets at your disposal.

IIAT Advantage = This is the name of the IIAT insurance marketplace, which is receptive to working with new agents. Learn more about IIAT Advantage.

Wholesalers & Managing General Agents = Wholesalers and MGAs represent insurance companies. They’re receptive to new agents, and they’re able to offer specialty insurance. Many will have few or no commitments, as they retain a portion of the commission and are compensated per transaction through policy fees (which are passed along to the customer). The Texas Surplus Lines Association has information on wholesalers and MGAs.

Market Aggregators = These groups help new agents set up their first office, access otherwise inaccessible markets and programs, the chance to get direct appointments, and a chance to share in the network’s profitability. In return, they ask for a percentage of commission, a membership fee, or give up a small stake in the value of the book of business built up through the aggregator. Review the contract carefully, especially as it relates to book ownership, commission, revenue sharing, and exit costs.

Step 5: Get an Agency Management System (AMS)

An agency management system (AMS) is software that will be fundamental to your agency’s success. Your AMS will provide a framework to all of your business processes. The most successful agencies operate as digitally as possible.

Agency management systems range in cost—from $1,000-$5,000 for a start-up, with monthly fees of $60-$600. A high-quality AMS will more than pay for itself in time.

When you join IIAT, you also become a member of the Independent Agents & Brokers of America, which has an Agents Council on Technology. The ACT website has resources to help agencies harness technology to maximize productivity and profitability. Check out IIAT's partner, Catalyit, for all your technology solutions.

Step 6: Create a Procedures Manual

It’s estimated that 1 in 5 insurance agents in Texas will be involved in an errors and omissions (E&O) claim. To avoid this, create a procedures manual, which creates structure and guidelines for how you conduct business. Your procedures manual should be updated regularly.

Step 7: Get Training

If you’re going to be successful, especially in the long term, you need to regularly educate yourself. IIAT offers its members hundreds of training opportunities.