The Ultimate Guide to Owning Your Own Independent Insurance Agency
TLTR: In this article, we go over some of the basic concepts and pros and cons of independent insurance agencies, how to start your own, and some industry tips and tricks.
Are you considering starting your own independent insurance agency? Whether you’re an insurance expert whose entire career has been leading to this point, or you’re new to insurance but have fresh business ideas – this article is for you.
Starting any kind of business is no easy task, but an independent insurance agency can feel extra intimidating. That’s why we’ve done the research and compiled all the information you need in order to start a successful independent insurance agency of your own.
In this blog
- What is an Independent Insurance Agency?
- Captive Vs. Independent Agents
- How to Start Your Own Independent Insurance Agency
- Pros & Cons of Opening Your Own Independent Insurance Agency
- Pros of Opening Your Own Independent Insurance Agency
- Cons of Opening Your Own Independent Insurance Agency
- Is Opening An Independent Insurance Agency For You?
- Independent Insurance Agency FAQs
What is an Independent Insurance Agency?
An independent insurance agency is simply an agency or a collective of independent agents who provide insurance solutions that are not tied to a company. Instead of working for any particular company, they work for their clients. Independent insurance agencies offer countless options, personalized advice and also help you with claims.
Captive Vs. Independent Agents
There are over 1.2 million insurance agents and brokers in America today, according to Statista. We can break all of these agents down in two categories – captive and independent. To understand the true potential of an independent agent, one must understand the limitations of a captive agent.
Captive agents are tied to a single insurance company. Because of this, the focus is a lot less on the client and a lot more on selling a product through any means necessary. While a captive agent can still be as empathetic as any human being, their ultimate goal is not to help their client, but their company.
Not only do independent agents prove to be more useful to their clients, but they also have a much higher ceiling for their earnings and can potentially make exponentially higher commissions. That being said, independent agents can also face periods of time where they don’t make commissions. In that case, a captive agent would have a much more stable and consistent income.
Captive agents on average also receive more training and support from their companies. They also join a larger pool of fellow agents, which gives them an opportunity to network and learn from their colleagues. Because of these reasons, becoming a captive agent can actually be a great way to start a career as an insurance agent.
However, the average client definitely prefers working with an independent agent.
How to Start Your Own Independent Insurance Agency
As with any task, sometimes the hardest part of starting an independent insurance agency is simply starting. Once you’re ready to commit yourself to your new beginning, there are a couple of general steps you need to follow to ensure you’re on the right path. Those steps are as follows:
Create a strong business plan
The first step to starting any business is your business plan. Write down all your costs, risks, advantages, and resources. Remember to clearly identify your target market and what sets you apart from the competition.
Find a team
No matter how big or small, you will need a team. Be it a full team of board members, a single partner, a personal assistant, or simply a loved one providing emotional support, you cannot do this alone.
Choose your legal structure
Are you a partnership or a sole proprietor? Are you an LLC or a corporation? Analyze the risks and benefits of all possible structures. This is a major decision that should not be overlooked.
Choose a catchy name
Make sure it’s SEO-friendly and is easy to say and spell. Run a few searches to make sure your name is unique and not used by any direct competitors. Once you have a name, register it with your state’s government.
Get your licenses and permits
Once you are registered with your government, you can start applying for licenses and permits depending on your needs.
Buy commercial insurance to protect your new business
Look into commercial property insurance and commercial auto insurance as well as renters insurance, cyber liability insurance, and general liability insurance to stay on the safe side. If you skip spending time on insurance, you risk having to pay large legal bills and other unforeseen costs out of your own pocket.
Pros & Cons of Opening Your Own Independent Insurance Agency
An important task in any type of decision-making is to weigh the pros and cons. Think deeply about the advantages that motivate you to move further with your goals. Along with that, consider the disadvantages that may stop you in your tracks. We’ve compiled a quick list to help you get started.
Pros of Opening Your Own Independent Insurance Agency
Higher payouts in commission
You will obviously make a lot more money as a successful independent insurance agency owner than you would as an agent. A big benefit to opening your own independent insurance agency is the payout if you succeed.
You own your business
Owning your own business can alleviate a lot of stress. You decide what to prioritize and you make your own schedule. A lot of the stress that comes from being an employee is that you cannot make larger decisions even if they do affect your work. Owning a business allows you full autonomy to move your company in the way you feel is best.
Adding reliable insurance help to your local community
By starting an independent insurance agency, you help people overcome a lot of financial hurdles. A lot of people pay too much for insurance simply because they do not know how or have the time to find a cheaper quote elsewhere. You also have the power to protect the people in your community from insurance scams and fraud.
A great way to create attainable jobs for people
Independent insurance agents just need willpower, people skills, and a license. It’s a job that people from all types of financial and academic backgrounds can enter and excel in.
Cons of Opening Your Own Independent Insurance Agency
Along with a higher payout, you can also accumulate higher losses. Large legal bills and unforeseen costs will come out of your pocket, especially if you don’t have the right insurance plan. Even when your staff goes through periods of underperformance, you will have to continue paying their contracts and maybe even invest for additional training.
Instead of 9-5, you’ll work 24/7
There will be times when your company will need your undivided attention and during those times, you won’t be working 9-5 but rather all day and all night. While being your own boss can be very low-stress when your business is flourishing during the peaks, it’s the exact opposite when you reach turmoil in the valleys.
New tech puts agents at risk
According to Forbes, chatbots, AI, facial recognition technology and machine learning actually put insurance agent’s jobs at risk. With the growing prevalence of the internet as a means of financial management, the longevity of an insurance agency can be questioned.
Less support from larger insurance companies
A lot of big-name insurance companies may not want to deal with your agency at first. It will take building a reputation and having big profit margins to convince a lot of insurance companies that your agency is worth their support
Is Opening An Independent Insurance Agency For You?
Of course, there’s no such thing as a business without risks. However, if you can weigh your risks and resources and identify what makes your agency special, there is no reason you won’t succeed. An independent insurance agency can be a lucrative and fulfilling venture. Hopefully, this comprehensive guide gave you all the tips you need to take your initial steps into success.
Want to learn more about insurance? Check out our insurance blog to read more articles geared to making agents and agencies great. Feel free to ask any questions or share your own tips in the comment section below.
Frequently Asked Questions (FAQs)
When is the best time to start my independent insurance agency?
The best time to start an independent insurance agency, or any business at all, is right now. Through all the economic and emotional turbulence of the pandemic, many aspiring business owners have been scared into the notion that “maybe this is not the best time” – which couldn’t be further than the truth. If you have the resources, a strong plan, and a will to succeed, the best time to start any business is today.
What are some examples of successful independent insurance agencies?
According to IANS, some of the most successful independent insurance agencies right now include: Encompass Insurance
- Erie Insurance
- Farmers Insurance
- Liberty Mutual
- MetLife Auto& Home
- National General Insurance
- Nationwide Insurance
- Markel Insurance
- Progressive Insurance
- Selective Insurance Group
- The Hanover Insurance Group
- West Bend Mutual Insurance Company
Do I need to rent a commercial property for my independent insurance agency?
You do not necessarily need a site to sell insurance, though it does help with credibility, organization and staff morale.
If you feel like these factors strongly contribute to the success of your business model, invest in a great commercial property. If not, you can easily run a 100% remote independent insurance agency as long as you have a strong internet presence.
How do independent agency owners make money?
Independent agency owners make money on commissions. Brokers make be anywhere from 2% to 8% depending on state regulations, according to Investopia.
When you hire a broker, they work for your agency and in exchange for their contracted salary and benefits, you earn a percentage of their commissions.
How much money do I need to start an independent insurance agency?
You can start-up your insurance company for a range of capital costs, from as little to $5,000 to up to $50,000 depending on the size of your operation.
Rent can also range from $0 for a home-based online agency up to $1000 per square foot at the highest end commercial spaces in prime locations of big cities. Your expenditures will depend on your goals and the objectives in your business plan.
Can I make as much money as a captive agent in a reputable company?
Of course, there is money to be made as a captive agent, particularly one in a top insurance company. There is also the assurance of a consistent salary-based income. These two things make the job of a captive agent very appealing.
However, theoretically, there is potential to make more money as an independent insurance company owner, as the ceiling for captive agents is relatively low. There is only so much money that can be made. Independent insurance owners, however, can make relatively higher commissions and have a higher volume of and/or higher budget clients.