Starting an insurance agency is a career goal for many insurance agents. While this can be a very profitable business, it requires a lot of hard work.

Knowing the key steps involved in opening an insurance agency — and having a good plan before you start — will give you the best chance of success. 

This guide will not only walk you through these steps but also answer some of the most common questions people have about starting their own insurance agency.

Steps to Open an Insurance Agency

Starting an insurance agency is a big endeavor with many tasks to address before you can open for business. But, staying organized and following these six steps can help simplify the process:

1. Do some preplanning.
2. Write a business plan.
3. Form the company.
4. Get access to insurance companies.
5. Set up systems and procedures.
6. Maintain compliance.

Step 1: Do Some Preplanning

Before you start scouting office locations or even writing a business plan, you’ll need to carefully consider your vision for your agency and how you’ll make it a reality.

So, it’s best to start with some general preplanning before you get bogged down in the details that come with filling out forms, setting up meetings, etc.

Assess Your Education and Experience

One of the first things to consider when opening an insurance agency is your own personal experience. At a minimum, you’ll need to be a licensed agent.

Ideally, you’ll have extensive experience with different types of insurance. As an agency owner, you’ll ultimately be responsible for all the insurance products your company sells. That makes it very important for you to have a deep understanding of all of those offerings.

If you’re licensed in one type of insurance, but feel you need more expertise in other types, consider taking a continuing education course.

Choose Between a Captive Agency and an Independent Agency

Choosing whether you want to open a captive agency or an independent agency is one of the biggest decisions you’ll make while planning your business. An independent agency can sell insurance from a variety of carriers while a captive agency signs a contract to sell insurance from only one company.

Each has their pros and cons, so it’s important to think carefully about your preferences as an insurance agency owner to decide which is the best option for you.

Captive agencies often have lower startup and marketing costs than independent agencies, for example, but they also typically have lower commissions. Moreover, captive agencies usually have fewer potential products they can sell because they’re limited to just one carrier.

Independent agency owners can offer a wider variety of products and typically have more control over how they run their business, including choosing if they want to focus on particular lines of insurance. While they also can earn higher commissions, their startup and marketing expenses are usually higher. In addition, it can sometimes prove more challenging to attract customers because you aren’t operating under a single, well-known, existing brand.

Seek Legal Advice

Insurance is one of the most heavily regulated industries with many potential risks and liabilities. Seeking some professional legal advice will help you learn about possible pitfalls as well as ensure you set up your business properly and comply with all relevant regulations.

While this represents an added expense, it could potentially save you a lot of money in the future.

Find Startup Capital

Starting a business takes money. Whether you plan to use your own savings, apply for a business loan, borrow from family, or take on outside investors, you’ll need a solid idea for how you’ll fund your business before you get too far along in the planning process.

Develop Business Skills and/or Acquire Skilled Partners

Starting an insurance company requires more than just insurance industry knowledge. You’ll also need general business skills, such as in marketing, human resources, accounting, and more.

You can hire people to fill these roles, but it’s useful to have some familiarity with each of these areas. Taking a few general business classes could prove very helpful if you don’t have any previous experience owning a business. Alternatively, you could partner with someone who has skills in areas where you lack experience.

Step 2: Create a Business Plan

Writing a business plan is a best practice for any business. It’s also something most banks and investors will require if you seek outside funding.

The details of a business plan will vary, depending on the company, but most business plans include these key sections:

• Executive Summary: This summary of your business plan should include a brief description of your company, your goals, the market, and relevant financial information.
• Company Description: This detailed description of your business should include your background and expertise, why you’re starting the business, your legal business structure (e.g., a limited liability company (LLC) or corporation), your office locations, the customers you plan to serve, etc.
• Market Analysis: This section should feature a general analysis of the insurance industry as well as a local analysis of potential customer demographics and any competitors.

• Management and Organization: This section provides a description of your company’s management and organizational structure, including the board of the directors if you have one.
• Products and Services: In this section, you should share details about the products and services you intend to sell.
• Marketing Strategy: This section should provide details about how you plan to market your business and attract customers along with the expenses involved.
• Financial Plan and Projections: In this section, you should include any current financial data your company has along with planned budgets and projections for the future.
• Funding Request: If you’re seeking a loan or investment, include details on the type of funding you’re requesting and how much.

Step 3: Form the Company

Now that you’ve finished planning for your new insurance agency, it’s time to create the company’s legal business entity. 

The first thing you need to do is decide on a business structure. Will your new business be an LLC, a partnership, or a corporation? Make sure you review the pros and cons of each so you pick the structure best suited to you and your business.

Once you decide on a business structure, the steps required to form your company are fairly similar.

1. Select a state.
2. Name your company.
3. Get a registered agent.
4. File the formation documents.
5. Create an operating agreement and/or bylaws.
6. Get an employer identification number (EIN).

After you form your new company, you’ll need to complete the following tasks before you open for business:

1. Get required licenses and permits.
2. Register for taxes.
3. Buy insurance.

Step 4: Get Access to Insurance Companies

You can’t sell insurance without access to the insurance providers. You’ll have to set up meetings and build relationships in order to access those providers’ insurance products.

Ideally, you’ll schedule direct appointments with several insurance carriers. But, as a new agency, it may prove difficult to secure these meetings because insurance carriers generally prefer to work with established companies. If you have extensive experience as an insurance agent, that’ll increase your chances of landing these important meetings.

Other options include working with insurance wholesalers and market aggregators. The downside is that they typically charge a commission, which will eat into your profits.

Once you secure access to one or more insurance providers, you can then choose which products you want to sell. Some independent agencies focus on specific lines of insurance while others sell a wide variety of policies.

Step 5: Set Up Systems and Procedures

Staying organized is important for any business, but possibly even more so for an insurance agency. Establishing the proper systems and procedures will make your business more efficient, save you money in the long run, and lessen the likelihood of legal and compliance issues.

Purchase an Agency Management System

Every insurance agency needs an agency management system (AMS). Designed specifically for insurance agencies, this software helps you organize and operate the business. An AMS typically includes similar functions to customer relationship management (CRM) software plus additional features useful to insurance agencies.

While the cost of AMS software varies widely, expect to pay more than $1,000 to get started as a new business along with more than $100 per month.

Create a Procedures Manual

Every insurance agency should have a procedures manual. This will guide you and your employees by providing instructions on how to handle a variety of situations. Establishing clear procedures up front will help make your company more efficient and profitable while reducing the likelihood of it running into costly legal or regulatory issues. 

Here are some key topics your procedures manual should cover:

• Billing
• Claims Processing
• Human Resources Issues (e.g., Hiring, Onboarding, Performance Reviews, Workplace Complaints, Etc.)
• Social Media Policies
• Attracting and Retaining Customers
• Customer Complaints

This is just a short list of topic examples. Your procedures manual should include everything that relates to the operation of your agency.

Step 6: Maintain Compliance

All states require insurance agents to take continuing education (CE) courses to maintain their licenses. In addition to the required CE courses, as a business owner, you should aim to stay current with new industry trends and improve on your general business skills.

As previously mentioned, the insurance industry has a lot of regulations. That makes it very important to stay on top of your state’s requirements for insurance agencies. Contact your state’s relevant government office for specific information on what you need to do.

Additionally, most states have general filing requirements that businesses must follow in order to remain in good standing. These can include yearly tax filings, annual or semi-annual reports, franchise fee obligations, and more. Again, check with your relevant state office to learn about the specific requirements in your state.