Startup Guide for an Insurance Brokerage

Article Outline
  1. 1. Step 1: Business Plan
  2. 2. Step 2: P&C License
  3. 3. Step 3: Research Which Insurance Carriers You Need
  4. 4. Step 4: Retail Office Location
  5. 5. Step 5: Research Your Competition
  6. 6. Step 6: Define Your Target Market
  7. 7. Step 7: Obtain Access to Carriers
    1. 7.1. Joining an Insurance Cluster
      1. 7.1.1. How much will this cost?
      2. 7.1.2. What’s involved to end my contract?
      3. 7.1.3. Who owns my book?
      4. 7.1.4. What is the commission structure?
      5. 7.1.5. Customer Service Support
      6. 7.1.6. Carrier Access
      7. 7.1.7. What do other members think?
      8. 7.1.8. Has my attorney reviewed the contract?
      9. 7.1.9. Shop Around
  8. 8. Step 8: Obtain training and experience
  9. 9. Step 9: Budget Planning

This document outlines issues related to starting an independent Property and Casualty Insurance agency.

Step 1: Business Plan

A business plan is necessary to communicate your values to potential stakeholders and direct your agency onto the right track.

The plan explains what services you’ll be providing and how your customers will be acquired.

Map out your budget, address the potential risks your business might face, and describe the business environment you’d like to create.

A written business plan helps to introduce the people that will be responsible for the insurance agency with what they will do to help execute your plan.

Step 2: P&C License

Property and Casualty (P&C) licenses will be required for individuals.

Corporations and partnerships will also require separate licenses to be filed with the state’s Department of Insurance.

Plan for licensing ahead of time.

Step 3: Research Which Insurance Carriers You Need

Market aggregators, insurance clusters, or networks can help you obtain appointments and gain access to insurance carriers. Expect to pay them a percentage of commission or monthly fees.

Step 4: Retail Office Location

Most insurance carriers will make office visits to make sure you have a professional working environment that properly represents their brand.

Step 5: Research Your Competition

How many property casualty insurance agents are in your town?

If you are targeting a specific market, are there other agents already focusing on that same target market?

Step 6: Define Your Target Market

Who are your target customers?

How will you attract your target customers?

Do you want to focus on personal line insurance or commercial line insurance?

Do you want to focus on high net worth clients, or low income families?

Step 7: Obtain Access to Carriers

Joining an Insurance Cluster

A cluster is a group of several independent insurance agents.

Certain insurance companies don’t allow insurance agents to sell their products unless they meet a minimum quota. By joining a cluster, you can get qualified for appointments with high-grade insurance carriers.

When placing business through insurance clusters with direct access to quote and bind, you can write both personal and commercial insurance much faster than through a wholesaler which could have 24-48 hr turnaround time.

Before Joining An Insurance Cluster, Do Your Homework

Joining an Insurance Cluster may seem overwhelming, and if you haven’t done your research, you may be looking at some bumps in the road or realize you’ve joined the wrong cluster. We’ve put together these helpful hints in a checklist to help our potential agents on the ins and outs of joining an insurance cluster:

How much will this cost?

It’s important to get a summary of fees that it costs to join, including set up fees, monthly membership fees, fees for management system & rater, licensing fees (for you and your licensed producers), E&O costs, training costs, and any other possible fees. Find out if the insurance cluster offers a group E&O at a discounted rate to help cut costs and provide better coverage. Find out what other group discounts can the cluster provide, such as discounts on the rating/management system. Also office requirements can also add into expenses with rent, utilities, office supplies, etc. Also, check to see what the fees are to upgrade or downgrade your contract, if the insurance cluster has different level contracts.

What’s involved to end my contract?

One of the biggest things agents do not consider when joining an insurance cluster is the exit fees if you decide to leave the insurance cluster. There may be fees to break contract or have your policies released. For example, if you have a $2 million dollar book, it could cost up to $100,000 just to have your policies released. Consider the time it will take to process the exit fees and release your policies to you. It takes time to contact each carrier to have your policies moved out from one insurance cluster to another. And keep in mind that each carrier may have different requirements for having your book moved, which could take up more of your time and effort. Overall, the time it can take to process your book out of one cluster to another could take anywhere from 2-6 weeks. If you have a $500k+ book, there’s no way you’d want to have to BOR each policy one by one. So consider your options with the cluster that you join to know exactly what you’re getting into.

You should also check if there is a non-compete clause in the contract; in which case, if you leave the insurance cluster, you would not be able to sign with another cluster or write with the same carriers for a number of years.

Who owns my book?

Find out if you own 100% of your book when you join an insurance cluster, or if you’re actually signing over 10-50% to this new cluster.

What is the commission structure?

Find out what commission split you’re getting both new business and renewals. What is the bonus split? Find out if you would receive profit sharing and if so, find out how much you’ll get and what the qualifications are. For example, do you have to be profitable or have a certain premium or need to be growing? These are the questions you need to ask the insurance cluster.

Also, how transparent is the insurance cluster with their commissions – will they give you a copy of commission statement to show how much they are getting versus what you are getting with the carriers?

Customer Service Support

If an insurance cluster only has 10 staff and are servicing 100 agencies, you can probably estimate that the customer service support is going to be pretty poor. The staff to agency ratio has to be more even to be able to provide quality customer service support to the agents. Find out how many support staff the insurance cluster has, and how much of those staff will be supporting you.

Of the staff that is supporting your agency, what kind of compliance support will you get? Find out if the insurance cluster will help you audit policies or if you would be expected to handle your own compliance work. This is going to make a huge difference in terms of your relationship and status with the carriers, as well as your overall profitability.

In addition, does the insurance cluster provide outsourcing to agents and offer trained staff to hire to help you with things like data entry, customer service, and telemarketing? This can be a great benefit when considering an insurance cluster to join, especially considering the costs to outsource may be a lot less than hiring your own staff locally.

Lastly, does the insurance cluster have staff and a physical office in your state? If that’s important to you, you definitely want to ask that question when shopping around for the right cluster to join.

Carrier Access

Finding out which carriers the insurance cluster can provide access to should be a huge thing to research. Make sure it’s carriers that are available in the state you write business in, and also carriers that write the lines of business you’re clients need. If you join a cluster that only offers preferred carriers, and you write 100% nonstandard business, you’re going to be joining the wrong insurance cluster. Another factor to consider is if the carriers offered are going to be competitive for your area. It’s important for an agent to do their research and find out which carriers are competitive for them. A good detector of a cluster with good support and carrier access is looking at how much time it takes the agent to write their first policy from the day that they join. If you’re not able to write any business for months down the road, then you probably didn’t join the right insurance cluster.

What about commercial carriers? Some clusters will not provide commercial carriers. Check to see if you’ll have to manually submit quotes and get a lower commission for commercial business or if you’ll be get direct access with the commercial carriers.

Also, it’s important to find out if you can get direct appointments with any of the carriers through the insurance cluster. A lot of agents prefer to have their agency name on the dec page; but some clusters will work with the carrier to only brand the cluster name on the paperwork. If the cluster is really trying to help you grow your independent agency, this might be an important factor for you to look at.

What do other members think?

Consider if the insurance cluster is willing to share testimonies of other agents within the cluster. If they’re open to providing references and having you speak to other agents that have been members with them, that’s a good sign that you’ve joined a good insurance cluster.

Has my attorney reviewed the contract?

You should always make sure you hire an attorney to review any type of legal paperwork before you sign on the dotted line. Let’s face it, legal jargon can be easily misinterpreted. You want to fully understand what you’re agreeing to before you join any insurance cluster. You may not want to spend the money, but it can actually save you money, stress, and potential legal issues; so it’s best to have the professionals review. Provide the attorney with a copy of this guide as well so they can compare the contract to see if the cluster addresses all of these items.

Shop Around

Last but not least, are you shopping around and getting information from several different clusters or just joining the first one you find? The only way to find the best insurance cluster for you is to make sure you compare your options. Compare each cluster using this checklist and choose the one that lines up the most with your needs.

Step 8: Obtain training and experience

Step 9: Budget Planning

You cannot afford to be short on the initial budget and operating funds necessary to open the doors of your agency and keep it running.

< $30,000 of initial funds

Once you make it to the 2nd year and so forth, earnings will improve with residual income coming in from the policies sold in the first year.