How to Become an Independent Insurance Agent: A Cheat Sheet for 2023

Any experienced baker will tell you that baking is not as easy as the recipe makes it out to be. A new baker will need to observe their seniors, take notes, and practice hard. If you’re an aspiring independent insurance agent that wants to know how to start an independent insurance agency, then much like the new baker; you need to take notes.

However, there are a few shortcuts you can take to building a great insurance agency and acquire leads for insurance. Your hard work and resilience will hardly come second to these shortcuts but will help you in the long run.

What’s in Store for an Independent Insurance Agent?

As an insurance agent, you will be playing a crucial role when it comes to buying insurance. Customers usually have little to no idea of what insurance they should purchase, and look for expert advice.

Agent advice becomes even more important to clients when it is coming from an independent agent who offers more choices. Independent insurance agents sell one or more types of insurance, such as life, health, and property & casualty. Unlike captive agents, independent agents are not locked into specific products or carriers, which grants them flexibility.

The pay isn’t bad either. According to the Bureau of Labor Statistics, in 2020 the median annual wage for an independent insurance agent in the U.S. was $52,180. The commission allows successful agents to achieve high earnings. The commission they earn from renewed policies allows them to make passive income. However, before those agents started making money on renewals, they have to build up their agency.

How Do You Start an Independent Insurance Agency?

To start an independent insurance agency, traditionally it takes a lot of money, time and energy. It may seem easy to start a business from scratch, but a lot of effort that goes into creating an agency.

However, it wouldn’t be a cheat sheet if we didn’t have a shortcut around it, would it? You have two options:

Buy a book of business

Independent insurance agents can buy a book of business from an already existing insurance agency. However, according to BayState Business Broker it could cost you $250,000 to $500,000, or even more depending on how profitable it is. Even though your agency will be handed to you, you probably don’t want to part with too much money. It is similar to having sole proprietorship.

Become an independent agent through an agency model

Agency models are crafted to aide your independent agency with appropriate support and responsibilities. You will be able to concentrate on selling insurance while the agency provides all the operational assistance that your agency needs.

Insurance Agency Models

There are two options for these agency models that you can choose from:

1. Franchise Model

2. Insurance FMO Model

Franchise Model

A franchise will allow you to own an insurance business, and how much you grow your book is entirely up to you. They will provide you with all the operational assistance you need, along with access to insurance carriers. Although there will be a large number of fees owed to the franchisor, your agency will be associated with an established brand that adds to your company’s goodwill.

You may find that this agency model doesn’t give the independent insurance agents enough room to grow due to the non-compete clause that they include in their contract.

For example, Brightway Insurance is one of the better-performing companies that operates on a franchise model to independent insurance agents.

For a staggering initial fee of upto even $50,000, some insurers offers trustworthy branding, operational aid, lead generation services, and technical assistance. While it may sound like a good investment initially, you should know that many a times a 2-year non-compete clause may bring your agency to an abrupt end should you decide to stop working with them. Additionally, the need for an office space also raises the barrier of entry significantly.

Insurance FMO Model

If starting your independent insurance agency through a franchise is not your cup of tea, then you can consider working under an FMO model. This model is rising in popularity because it gives the agents much of the same services that the franchise model provides for. In most cases, they split the commission with their agents. On average, the commission split is 70/30 between the FMO and the agent.

Let’s look into Covered by SAGE, a start-up insurance agency based out of Georgia that functions on the FMO model. Their commission split is comparatively the best in the industry, with 80/20 for the first year and 50/50 for renewals.

The company is a little over a year old with ample backing and capital, and they are looking to prove themselves.

Covered by SAGE provides an excellent opportunity for agents on the east coast. Although they are new, their vision of “leading the transformation of the industry with agents front and center” certainly feels exciting. They also offer full range of insurance products, servicing assistance, marketing & lead generation support in addition to the high commission splits.

It is quite easy to see why more independent insurance agents turn to FMO insurance models for their businesses recently. The FMO models provide their agents with the same advantages as the franchisors with a higher level of freedom.

The prime focus of these FMOs is to make way for agent prosperity. A newer FMO may readily offer its agents better splits than established ones, but both encourage growth and smooth sailing.

Key Takeaway

It may be overwhelming as a prospective agency owner to find so many choices at your disposal. It is essential to choose the right option for your agency according to your goals and mission. Still, it is also necessary to understand which one of these models will encourage the growth of your company and its values.

Your independent insurance agency needs a nourishing environment to grow into its full potential. A thorough review of the agency models reveals that the FMO model could be your best chance of dominating the insurance industry.

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