How to Start an Insurance Agency Business from Scratch

Step-by-Step Guide on How to Start a Successful Insurance Agency Business From Scratch

July 26, 20203829 views0

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Starting an insurance agency business from scratch can be tiring especially if you don’t have a business plan.

When it comes to launching a successful insurance agency business you must have a proven business plan, a legal structure and must be duly registered with your State insurance commissioner.

Everybody wants independence. Having a business of your own is one of the ways to attain both the financial and the individual autonomy you need.

You would have time to focus on other things while having continuous streams of income from your “side business.”

Starting an insurance agency is one of the businesses many people tend to have a soft spot for. So, you like the idea of starting an insurance agency business, but don’t know where to start or the things you would need to make it succeed? You’re not alone on that.

A successful insurance agency business comes with many responsibilities. Same with starting an insurance company. If you fail to get it right at the onset, you might end up groping about on end to make headway. The majority of the challenges insurance agents face began in the first place because they didn’t get the starting phase of their insurance agency the right way.

There are some things you need to know about starting an insurance agency business in the United States, and we got you covered!

What You Need to Know about Starting an Insurance Agency Company

1. Write an Insurance Agency Business Plan

A wise man once said, “You plan to fail when you don’t have a plan in the first place.” It is applicable in all spheres of life, and the prospects of starting an insurance agency aren’t left out.

The first step is to draft and make an outline of the business’ operations.

A good insurance agency business plan serves as a roadmap of sorts that highlights the requirements for setting up the agency, as well as the possible hiccups that might come up at any time.

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The business plan tends to place your proposed startup in the spotlight for potential investors. You can only achieve that by putting all the needed factors into place while highlighting the benefits for the stakeholders.

Your insurance agency’s business plan should also state the costs needed to set it up, the individuals or people responsible for executing the operations, the target market, as well as the modules of acquiring more insurance clients for the business.

The market analysis of your insurance agency business plan shows that you understand the insurance market more than your competitors. This is because you need new and returning customers for your business to grow.

How do you write a mind-blowing business plan for your insurance agency? The best business plan for an insurance brokerage firm must include the following; executive summary, agency description, business objectives, market analysis, business operations, products and services, marketing strategy and sales.

2. Have a Legal Structure for Your Insurance Agency

We can’t talk about how to start an insurance agency or company and not mention how important the legal structure is.

Every business needs some form of legal structure that is binding on both the founders and the users/clients. The legal structure also helps in the distribution of powers and controls to specific individuals or people.

Ideally, you have many options, such as Sole Proprietorship, which is regarded as the simplest. It also empowers you to have more control over the operations of the business. On the flip side, floating an insurance agency business based on Sole Proprietorship tends to attract more costs, and demands your presence more often.

Otherwise, you can consider other legal structures like Corporation, Partnership, and Limited Liability Corporation (LLC).

Worthy of note is that each of the aforementioned legal structures has potential downsides and risks. Therefore, you need to select the option that does not only tally with the ideals of your insurance agency but also offers flexibility in terms of reducing personal liabilities.

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3. Figure Out the Startup Costs of Starting an Insurance Agency

You also have to discover the potential costs of starting the insurance agency business. Depending on the city you live in and how exquisite you would want your office to be, you will require between $7,000 to $60,000 or more to start your insurance agency business.

These startup costs will be used to purchase agency license, (if you will be hiring more agents to work with you) register your business name and get an office space.

To lower the cost of starting your own insurance agency business from scratch you may have to start from your home office. In that case, you won’t have to pay for office space and exquisite furniture.

The start-up costs tend to dip a hole in your pockets especially if you are operating from major cities like Melbourne in Australia, Sydney in Australia, New York or California in the United States. So, you might need some external funds to acquire the required items for the company, as well as paying rent and the employees/staff salaries.

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4. Register the Business Name of Your Insurance Agency

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The insurance agency you intend to start ought to be legally recognized by the government. Failure to do that might mean that you are operating illegally or under someone else’s name without even knowing it.

Hence, you must endeavour to register the business name. Note that the selection of a business name should convey the agency’s goals, the benefits for the investors/clients, and there should be no clichés in it.

Once you have made up your mind to start your own insurance agency business, quickly register your business name. Use the business name you have registered legally with the government to sign up on multiple business listing platforms like Yelp, Google My Business, etc.

5. Get a Tax ID

Like every other business, your new insurance agency would pay tax to the government. Therefore, get a tax ID for filling the fees accruable to and paid by your agency.

You may also want to use the tax ID to register with the government of your region to attain recognition as a resident business identity. That would also demand to pay local and state taxes.

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6. Get a Business Permit or License

The acquisition of a business license or permit allows your insurance agency to operate legally in the chosen location.

If you intend to operate as a sole proprietor, then your personal license is all you need and you can do it from your bedroom with nothing else but your website that helps you to generate insurance leads. But if you intend to recruit agents to work with you then you must get agency license to avoid the regulatory body putting you out of business.

7. Purchase the E&O Insurance

Your new insurance agency business needs coverage to be free from potential mistakes or errors. The acquisition of the Errors and Omissions (E&O) Insurance/Professional Liability Insurance is an excellent way to reduce the chances of getting charged for such omissions.

8. Select a Client Management System

Your insurance agency business would get clients, and there would be a need to manage them effectively. The client-agency management system/software makes it easier to reduce the time spent on completing administrative tasks.

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9. Buy a Book of Business

The Book of Business is a book that refers to your insurance agency to clients and their policies. The selling agent that sells the book to you also transfers the status as an agent of record. That way, your insurance agency would service policyholders’ accounts, while getting the associated commissions and renewals.

Join Cluster Groups or Remain Solo?

Your insurance agency has the option of joining a group of independent insurance service providers (Cluster Groups) or staying solo.

Some of the interesting benefits of joining a cluster group are: access to agency management software, increased negotiation commission rates, and the ability to quote specialty insurance. To join a cluster group near you, you will need to reach their minimum requirements and pay the entry fee.

You can explore the possibilities of both before deciding on which is favourable for your startup insurance agency. However, if the cluster group is trying to cash on your desperation by asking for a part ownership of your business then you need to take a long walk.

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Now You Can Start Your Own Insurance Agency Business

You now have some of the brilliant ideas you need to start your venture into the insurance agency business. So, take advantage of the tips above to float your insurance agency in style.