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:
- Do some preplanning.
- Write a business plan.
- Form the company.
- Get access to insurance companies.
- Set up systems and procedures.
- 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.
- Select a state.
- Name your company.
- Get a registered agent.
- File the formation documents.
- Create an operating agreement and/or bylaws.
- 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:
- Get required licenses and permits.
- Register for taxes.
- 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:
- 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.
How to Open an Insurance Agency FAQ
Do I need to obtain an insurance license before starting an insurance agency?
Yes, you need an insurance license before you start your insurance agency. Check out our state insurance licensing guides for more information about how to get licensed.
Is it hard to start an insurance agency?
Starting an insurance agency is more complicated than most other types of businesses because of the additional licensing and regulatory requirements. But, it shouldn’t be too hard if you’re qualified, well prepared, and follow the necessary steps.
What are the required steps to open an insurance agency?
You can open an insurance agency by following these six steps:
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.
How much does it cost to start an insurance agency?
The cost to start an insurance agency can vary widely, depending on many factors. If you operate a one-person agency from your home, for example, you could get started for a couple thousand dollars. But, you could spend more than $50,000 if you need to rent office space and purchase computers and office furniture.
How does an insurance agency work?
An insurance agency sells insurance products from insurance carriers. The agency receives a commission and/or fee for the sales it makes. Captive agencies sell the products of only one carrier while independent agencies can sell insurance products from various carriers.
What are the requirements to start an insurance agency?
The main requirement for starting an insurance agency is having an insurance license. In addition to this, states have their own specific rules about what you’ll need to open an insurance agency. If you’re working towards getting a license for your insurance business, you may want to check out our Insurance License for an LLC and Adjuster Business License guides.
What skills and experience will help you build a successful insurance agency?
Some of the key skills and experience you’ll need to run a successful insurance agency include extensive insurance product knowledge, sales skills, and management skills.
How does an insurance agency make money?
Insurance agencies make money by selling insurance products and receiving a commission and/or fee from the insurance carrier.