The Tell-All Guide to Living and Opening a Scratch Agency: Part 2

by | May 24, 2018

tell all guide from scratch agency

Before we begin this epic conclusion to this 2 part series… let’s first state the obvious shall we?

When I originally embarked on this two-part journey I released the first article January 2018. The second part of the series to be released March 2018….


Yeah so, this is real life. Let’s continue with the obvious… its May. *more crickets*

I am going to chalk it up to the news that threw the entire country on its axis at the beginning of April- the divorce of Channing Tatum and Jenna Dewan-Tatum of course.

That news had to have everyone running for the hills and not believing they could go on. Thus forgetting about my Part 2 anyhow.

No? Just me.

Fine… well that’s my excuse anyway. Everyone has one.

In Part 1 of this tell-all guide, we covered things like New Business Premium Algorithms, Renewal Calculations, and Networking. We dove into #realtalk about money and how living on a scratch independent agency owner’s (SIAO) budget simply sometimes just sucks. In this article, we are going to get a bit more specific. The detailed business plan of what is needed to make your ship sail.

Am I going to prevent you from making mistakes? Nope. Am I going to maybe stop your existing thought process and make you think a little? Possibly. Am I going to let you in a little on my crazy and change your opinion on said “successful agents” or how it should be done. Absolutely.

You know it’s always going to be a wild ride so I don’t need to warn you anymore, so I’ll just remind you to grab some coffee. It’s about to get detailed.

The tell-all guide to living and opening a scratch agency: Part 2 The Conclusion

Getting Appointed

You’ve read Part 1 and you are now on your way into Part 2 and you are jazzed to get your agency up and running. One major issue. You don’t have any companies that you can actually quote with.

*Big Sigh here*

Claudia McClain, Independent Agency Owner

How the heck are you going to be this mega-successful agent like Claudia McClain or Una Roy (both of whom I admire greatly and fangirl over) and not have companies to write business with (fun fact: no amount of motivational Pinterest quotes can assist with this)? This is where preference and how you would like to run your agency come into play. Here are the most popular three options when it comes to “getting your quote on”.

1. Direct Appointments

You want to talk about Savages? These agents who don’t join any “group” or “cluster” (more on those in a minute) are down right the most “beast mode” competitors of them all. When you as a SIAO decide to forego any assistance and simply go direct to the carrier/company to convince them of your worthiness to write for their company with no independent agency owner street cred, you my friend are a BAD ASS

Una Roy- Independent Agency Owner

Most companies have certain new business quotes and annual premium commitments that make it difficult to lock in a contract without having a track record as an agency owner. Most companies like Progressive, SAFECO, Travelers, and other large carriers in the space are going to require you to meet certain guidelines to even be considered to write business for them.

This is where things get tricky. Getting immediate direct appointments is not impossible. It is simply just something you need to be prepared for ahead of time. You’ll want to contact carriers and find out the process in order to become directly appointed, you need to be prepared for face to face meetings and also prepped with an industry resume.

Don’t just target in and focus on your larger carriers like SAFECO, Travelers, or Progressive. Think about reaching out to the smaller regional carriers like Erie, Secura, or even Mutual of Enumclaw. Important things to know when talking to carriers about getting directly appointed:

  • Do they have a minimum premium written per year to keep your contract
  • Do they have a minimum quote per month/year to keep your contract
  • Are they more of a technology based company or do they have an older quoting non web based quoting site (this can make a huge difference depending on your business model and how you like to do business)
  • How available is your rep from the company? * Take this piece from a pro of not being able to get an answer when I need it… and nothing brings out the crazy more than that for me. 
  • How do they handle incoming claims? Can customers file claims online? How do they handle towing claims (reimbursement basis vs they offer their own towing dispatch etc)
  • What does their commission structure look like? What are you making up front at new business vs at renewal? Is there an opportunity to negotiate once your book of business reaches a certain level of premium with them?
  • How open are they to future book rolls? Some companies are more receptive than others

There are about 50 other questions I can think of off the top of my head from personally going through some of these interview questions. The key here is, be educated and up front that you aren’t messing around. You are interviewing them as much as they are interviewing you.

2. Clusters (no, not delicious peanuty goodness)

A cluster group can be defined loosely (Erin’s definition) as a pre-formed group that bands together through their strength in numbers to obtain and maintain already set in motion carrier contracts.

Phew…. talk about a run on sentence, friends. 

Some things you need to know about a cluster are:

  • There is typically a fee involved when joining said cluster; often these fees are hefty up front.There are groups available for start up’s with no fees attached, but they vary by state so do your research ahead of time.
  • Monthly fees – normally there is a monthly fee attached as well. Sometimes this as a significant perk in that it can get you access to agency management systems, aggregators, and many more agency tools you normally wouldn’t be able to afford.
  • “Peace-out Fees”– Decide you don’t want to hang out with the cool kids anymore? More than likely you will have a termination/exit fee while doing this. Make sure you find out what it is ahead of time.
  • Some examples of cluster groups are groups like SmartChoice, PIIB, SIAA (among so many of them)

The benefit to a cluster is that you still own your book of business and function as an independent insurance agency owner while paying monetary fee’s to have immediate access to start writing business. You also have potential depending on your cluster to earn profitability bonus within the cluster (more on profitability in a moment). There are some downfalls for sure with clusters (as with most things in life), for example making immediate changes, potentially having restrictions on what management systems you can use, or making a sale… however these items might outweigh the downfall of not being able to write as much business as a startup agency owner without any carriers.

Managing General Agencies (MGAs)

The best way to breathe in this type of agency set up is to think of one mega functioning agency (key word here is functioning agency) with mini (sometimes mega) agencies functioning underneath their main agency. Your mini (or mega) agency would still be “yours” and owned by you with some monetary throw backs to the MGA.

Why is this different than a cluster? The main difference between an MGA and a Cluster is that the Cluster is not an operating functional agency that services customers/policies. They are a group of agencies formed together to get discounts, options to companies, and potential pooled bonuses/loss ratios. While the MGA is more geared to allow you access to more carriers by use of a “house code” a Cluster encourages the use of direct codes through the clusters backing (meaning the cluster is vouching for you to be an approved agent to write for the carrier). Using an MGA doesn’t mean you can’t go “direct” it just means you need to play by the rules. Know your contract and ask questions.

An MGA is usually great at making magic happen simply because they are looked at as large accounts for carriers. Carriers are pooling the entire MGA together for items like loss/profit as opposed to others than narrow down only on your agency. For a start up agent, this could be beneficial. MGA’s also are fantastic for that “weird risk” or specialty market that you normally wouldn’t obtain on your own.

Things to consider if gearing up to interview an MGA:

  • Is there an up front start up fee?
  • Are there monthly incurred costs?
  • Are you limited to the type of Agency Management System you can use or aggregator (more on these in a moment)
  • What is the split on new business premium (70/30 80/20) same as renewals
  • How are commissions paid? Typically through an MGA the commissions are bundled in one check for you after being paid to the MGA and then redistributed to you as the agency owner.
  • How often are you paid?
  • Does the MGA cover a blanketed Errors and Omissions Policy (more on E & O in a moment) over their appointed agents or are you expected to obtain your own (typically on an MGA it would be blanketed)
  • What kind of training do they offer? Are they going to spend time with you reviewing Agency Management System training, aggregator training, proper documentation for policies etc

An MGA is usually a wealth of knowledge when it comes to both personal and commercial lines because they have already done the hard work. They negotiate contracts on behalf of your agency with carriers directly and prevent you from having to do alot of that leg work yourself (more power comes with more $). They usually have killer processes in place of how to navigate through new business and renewals. As with the other two options, there are also down falls. Most of the time an exit from an MGA would be one that would result in limitations on how you can sell or retire in an agency. Commission splitting is normally present and sacrificing of profitability bonuses is sometimes present depending on who you are working with.

Some examples of MGA’s are, The Ahbe Group, Aspen Insurance Agency, or Sun Coast General Insurance Agency. There are so many options but those are just three that I was able to find samples of.

Contracts with any of the appointment types listed DO vary. I would encourage you to let this be a start guide to where to go next and to do research on your own to find the best fit for you. This is most certainly not the end all be all to how to get appointed.

3. Profitability and Loss

As talked about in Part 1 of this tell-all guide to opening and living as a “scratch agent”, I covered the algorithm to new business commission and growth. We reviewed how you calculate your “Butts in Chairs” ratio and how you need to calculate your quotes required to obtain your total written.

Ringing any bells?

Here is where we talk about if the business you write is C.R.A.P. or if it’s quality.

In January 2016 I sat in a room at the Menger Hotel and listened to a friend of mine, Linda Fisher (she’s a beast female insurance agency owner in Michigan, check her out on the link above), talk about how she has done away with C.R.A.P (Cancel, Re-write/Reinstatement, Accounting, Payment) business. As much as it seems obvious to some of us that we don’t want crap business in the first place, to the scratch agent in me… it kind of sounded well… ridiculous. 

Now, before I get a phone call from Linda telling me that I didn’t hear a word she was saying, let me step back and say now as a more seasoned agent (9 years Captive and 4 independent- shhhh I am still young) I understand what she was trying to convey. If you write business as a new agent, or any agent for that matter, and it has a heavy probability of claims, it WILL affect your bottom line. But as a new agent, your mentality is “write the business”. Cut that out.


Depending on who your cluster, direct carrier, or MGA is, you could bonus if your agency is profitable every year. So being a green agent, you are probably asking what does being profitable vs. not profitable look like.

Let me strip it down (not quite like Luke Bryant but close)

The amount of business you write (money in)


the amount of claims you have in your agency (money out)= profitability or loss of the agency

So what happens if you write a $600/annual home premium policy that has two claims in the first year paying out a total of $41,200. This should be easy, but being that you are probably still thinking about Channing Tatum and Jenna Dewan’s divorce let me make it easy, you ain’t profitable, chiefWell, not on that policy anyway.

So the idea here is that you want to be more profitable in your agency with every carrier than you are with waving a white flag because you’ve had so many claims. Here are a few things to consider to avoid writing C.R.A.P. BUSINESS (as my bold and fierce friend Linda says) and I may have even thrown in a few of my own.

  • Commit to not calling late pays or non-pays. What? When Linda hit me with this one it shocked the pants off me. Mostly because I am a scratch agent so I want every penny. However, as she explained so wonderfully, you don’t want the type of client that you have to chase for premiums. You have one job… pay your premium. I’ll do everything else.
  • Set an agency limit of what type of business you will write. Example, if you don’t want to write a client with a DUI then you need to commit to that and declare yourself an agency who simply doesn’t have a market for a DUI within the last 5 years. Stay consistent and no exceptions. I personally have no problem writing this type of business because normally what I find is it’s a great client with a poor circumstance. I usually cap it at the one in my agent (ya know because no one wants Uncle Alfred who drinks heavily every Christmas to cause a 7 car pile up on the I-10). This can also go for home claims etc.
  • Stay away from the annual Re-writes: Re-writing business stinks. It just does. Sometimes it’s necessary, however if there is a way to avoid it, do it. Some examples of how to avoid this is to set the customer expectation up in advance that they WILL have an increase on their insurance every year. It is just how it goes. You will hear me speak a lot about CONDITIONING your clients and this is one of the main ways you can do it. Provide them with the expectation up front and review it at renewal time proactively.

Errors and Omissions

This is where we put on our armor to protect ourselves. Just like with our customers, we explain to them that they need levels of coverage based on their exposure. This is even more important for you.

You need to make sure you have your business liability in place to protect your office, exposure there, and of course the rest of your BOP (business owners policy) to cover those sweet MAC Books you just had to purchase.

But what happens if you screw up? What happens if you advise Billy Jean that it’s ok to have state minimum liability limits? What happens if you leave water/backup coverage off a home policy? Or worse… like yours truly… leave replacement cost on contents off a home policy by accident (yes… this really happened and thank the insurance Gods I was able to correct it — insert eyeroll to myself here).

You need to have an Errors and Omissions policy in place to cover you. As a scratch agent, you need to consider things like premium, deductible and how much coverage you actually do need.

I would recommend reaching out to some of your peers to start with since you are green in the space and each circumstance is different. A great resource for this is Insurance Agency Owners Alliance. This group of Independent Agency Owners ONLY will give it to you straight and help point you in the right direction. Search the feature in the group to see what has been talked about previously for tremendous information.

Agency OCD

You’ve guessed it, on top of being a numbers girl, a mother of 4, and a coffee junkie… I am also an organizational freak.


I referenced in Part 1 the importance of having an Agency Management System. What I did not stress to you was how important. In order to run a successful agency you must have a place to reference your policyholders policies, notations, and reference backs so that way if something does happen you have a way to be ready for rebuttals. This is the CYA of the insurance world. For more information on some samples of AMS’ refer back to Part 1.

Now that we have covered that, I wanted to break down my new business incoming lead process to show you what it looks like in my agency specifically. *Disclaimer* this is and should be different for every agency. This is simply just what works for me.

New Business Lead/Quoting Process

  1. Lead is generated – doesn’t matter how at this point, but its here.
  2. Name of Customer/Business goes into my Active Campaign “deals” portion of my account (more on this in a moment)
  3. The customer is contacted with an email first (since most of the time they are contacting me online I am assuming that is their preferred way of communication).
  4. Once information is collected, they are quoted using an aggregator (reference back to Part 1). 90% of customers are generated a Quote Video (for more information on that visit Advisor Evolved‘s link in the Quote Video link)
  5. All quotes and notes are put into Active Campaign “deals” (my new business tracking portion of my automation system). They enter into a thank you automation.
  6. Follow up with a phone call to make sure customer received and then ask for the bind.
  7. Once bound (assuming we are all gangsters closing business) they go into my AMS (I use AMS360) and into my New Business thank you automation.
  8. Once all signatures are collected via Docusign (because its 2018 and I am not a begger for signatures) everything gets uploaded.
  9. New Business Automation through Active Campaign then generates for 360 days a continuous flow of reminders to the agency to send out hand written thank you’s at both inception and the 9 month mark (stole this from my pal Nick Ayers, who is a fellow scratch agency owner and also an expert in keeping his clients happy through pro-activity toward renewals).

Renewal Process

What’s the statistic? It is 67.98767 percent harder to obtain a new client than it is to keep the one you have (totes made that up).

As much as I suck at knowing statistics, I do know that no matter what it is… it’s true.

What’s also true, is that I love the ellipsis (in case you haven’t noticed yet).

Scratch Agent’s have an immense advantage in that if you start this process from the beginning it can save you a headache later. I had lots of headaches, so here is how I remedied them and how I handle them moving forward.

  1. 60 days prior to renewal generate your upcoming renewal list. If your management system does’t have auditing capabilities… it’s time to make like Elsa and let that go. Find a new one.
  2. Renewal audit is exported into “it’s your renewal time” automation. I talk a lot about Active Campaign just simply because it’s all I know, however any automation should be able to do this. Check to see who you are current with and use them if possible, no need to pay extra if you can avoid it.
  3. Emails are sent out with the automation indicating a custom link to my Calendly scheduling app. This tells customers if they would like to review their renewal click here to schedule a call. Conditioning my clients that we need to schedule calls (if you haven’t gotten it by now… I like all the things planned). The remainder of the automation allows them 3 opportunities of reminders to not forget about their renewal and also a reminder to contact our agency if they haven’t received new id cards etc.
  4. Notes are made in AMS.

The reason processed and notes on incoming leads are so important is simply because we are human. We have the margin of error that we simply just can not help. Just accept it, you’re not perfect (shocking right). Tracking my incoming new leads/business is the only reason I even have any business writing anything about processes. It keeps me on track and also keeps me with a good idea of what is in my “pipeline/funnel” for commission purposes.

Stop pretending you own a Yacht

I wrote an article a while back that ultimately allowed me the freedom to be honest about my gap between being a business owner and a Mom. As much as that article allowed an audience to see what I was all about, it also allowed a raw look inside an industry that is normally covered in smoke and mirrors.

Am I right?


In my arsenal of blogs to write is an entire article written on “social proof in the insurance industry“. It would explain the traps you and I will and have fallen into by watching the industry around us instead of focusing on what needs to be done.

Writing new business

It will tell you that there is no room to do anything else while starting your insurance agency other than simply starting your insurance agency. It would tell you that only 2 percent of what you see on social media is true.

It would tell you that if Independent Insurance Agency Owners were judged on book size alone that you would find more like you (the new guy/gal) rather than the mega agents everyone claims they are. It would also tell you are falling into the trap of believing that you are failing based on someone else’s timeline is the #1 way you will never make it.

Of course, this article would be preachy- maybe even get an Amen… and it’s an article that maybe someday when I have a few more mistakes under my belt that I will write. For now, I can speak from the experience of my first years in the agency.

Which means…

I am about to share the most insightful piece of juice… you ready? There is nothing SEXY about starting a new business. You have no money, you eat what you can afford, you are probably draining your savings or living off of another income.

So why do agents appear to have it all financially figured out? Fun fact… perception is not reality (trust me, I’ve checked).

You don’t own a yacht, stop pretending you do. And eventually you will be able to put the ramen away, until then avoid shiney objects that can get you in trouble.

I said in Part 1 that I would explain why I pay myself the same amount every month regardless of the agency’s success. Here’s why…

 It is the agency’s success.

Am I the agency? For all intents and purposes… yes. In the same breathe, it is my ability to budget efficiently that tells me when we have a rocking month I make the same, so when I have a not-so-rocking month… I can make the same. Thus never experiencing and “omg I don’t have enough to pay my 9/month e-fax bill”.


You don’t need to be an employee of your business (but I would recommend talking this over with your accountant- by the way… you need one of those) to be a scheduled expense.

Money is serious and it will make or break your sanity and your business if not managed appropriately. Making an agency budget at the beginning is crucial. I’ve said this numerous times: you don’t need trinkets and trash, so be wise in what you choose to spend your hard-earned agency money on.

The Niche Market/Demographic

Ever heard the saying

The riches are in the niches.

If you haven’t, now you have, learn it, love it, own it.

In order to be successful as an SIAO you have to determine who is the best fit for your agency. For me, that was millenials. I could go into all the reasons why this is the niche I went after, but that’s a topic for another day.

Things to consider when picking a niche/demographic:

  • Who do you like working with?
  • Do you have a speciality you know better than anyone else?
  • What are some of your passions/hobbies?
  • Do a current audit for commercial business and see who your top businesses insured are (florists, photographers, etc)?
  • Do you have an advantage in the area with certain insurance carriers (CSE for example offers special discounts for first responders and teachers here locally)?

Go be a Savage…

This is where we have that awkward pep talk that you don’t think you need. Trust me, you need it. I need it.


My single largest piece of advice when it comes to opening and operating a Scratch Independent Agency is to get out of your own way. For about 2 years I chugged along just writing as much new business premium as I possibly could and then it hit me that I could write business and sucked at being a CEO.

You need to learn at the beginning how to be both. Divide your time equally. Track your successes and your fails.

If you think we’ve covered it all, we haven’t. To see the rest… you’ll have to be in the audience at Elevate 2018 to hear how my scratch agency moved from home office to corner office. How we developed not one but multiple brands within the agency to maximize lead generation.

Tools and tactics you’ll take away immediately to start generating leads and referral sources to grow your book of business. Along with how I became the Advisor Evolved Beast Mode Blogging Champion of 2018 and what it has done for my new niche business (yes tapping into our 3rd niche brand).

You won’t want to miss The Digital Agency: How an Independent Agent Created the Digital Agency the Industry Didn’t See Coming.

See you at Elevate 2018.

Erin Nutting

image credit: Kristina Flour on Unsplash

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