What to Consider Before Opening an Insurance Agency in 2021

Start Your Own Agency

One of the tenets an independent insurance agent takes the most pride in is, well, being independent! It only seems logical then that from time to time many of us will grapple with the idea of going a step further and opening our own shop. While it may be almost too easy to imagine being your own boss (especially on those early Monday conference calls and long Friday afternoons) often the reality looks much different than the fantasy. If you’ve found yourself thinking about opening your own agency more often and on an increasingly serious basis, let’s lay out the factors and challenges to consider beforehand!

Investment

Along with the obvious financial considerations, how much time and effort are you able to put into a new start up? Most small businesses take a minimum of 2 years to become profitable. This means committing to no or very little actual income for an extended period of time and even more daunting, the dedication of most, if not all of your waking hours to the hard work required to start from scratch. If you have a young family, or pursuits outside of the office that take priority, consider if and how you’re able to balance those along with a new agency venture.

Timing

While family obligations and other commitments are an important part of the timing factor, it can be just as important to examine current social and economic markers. The COVID-19 crisis has been devastating for many industries that we serve, resulting in a loss of premium volume, but many independent insurance agencies are surviving, and some are even thriving despite this. Have a conversation with other agency owners in your area about their observations and concerns, then use all available resources to assist you in strategically selecting when to make your debut as an agency principal.

Market Access

And now we arrive at a most critical point – what markets would you need to have access to and how will you achieve this? It has become extremely difficult for young agencies to get direct access to the large national carriers due to volume requirements so you may need to think outside of the box. There are brokers, wholesalers, and general agents that will share their access for reduced commissions but be sure to read the fine print. If an eventual direct appointment with a certain carrier is important to you, find out if that company will allow you to AOR business previously written through an aggregator, or if their loyalty to those who came first supersedes this.

Keep in mind that there are many market access resources offered by state and national associations, which are designed to help independent agents grow and eventually achieve their own appointments, such as Big I Markets through IIABA. And don’t be afraid to apply for appointments even if you feel you might be rejected. I promise sometimes you’ll be surprised and even if you aren’t immediately offered a direct contract, it will be beneficial to get your name out there and establishing a relationship with the sales rep.

Operations

On to the practical. Do you have the capital to employ help and spend on tools like an agency management system? If so, take time to think about what type of supportive role would help you the most and the kind of manager you would want to be as well as researching the variety of software that’s available. If not, are you comfortable being a one person show and do you have the ability and aptitude to juggle all aspects of the business, including sales, marketing, processing, service, and accounting?

Pipeline

A steady stream of sales prospects is one of, if not the most, important factors in keeping the lifeblood of an agency flowing. Being able to immediately establish a book of business is ideal, but this has become tougher as many agencies have strayed away from allowing producers to own their own book of business. If moving from another agency, do you own or have the option to purchase your book? Or is there a non-compete agreement that would restrict you from soliciting your current accounts? 

Current accounts aside, you’ll want to put together a plan to identify and approach new prospects. Think about the spheres of influence you have access to and how you can leverage those relationships to further generate referrals. Lastly, consider whether there is certain niche of business that you would like to exploit, or do you prefer to operate as more of a generalist?

To put it simply, the saying “if you fail to plan, you plan to fail” resonates here. With that in mind, remember that the very best part of being your own boss is the ability to change course when you see fit! This means that if you start out with the intention of specializing in benefits and find yourself stumbling upon more P&C business, it’s okay and even necessary sometimes to pivot. Historically, the most successful individuals and businesses have consciously reinvented themselves from time to time in order to keep pace the world around them. It may be time to start writing that business plan to work towards the dream of agency ownership!

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