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How to Start an Independent Agency

Your MAIA Contact:AmieHughesSM.jpg
Matt Barton
Chief Executive Officer

 So you are thinking of starting an independent insurance agency?

This is a major consideration and we at the Missouri Association of Insurance Agents share your excitement and applaud your initiative. The information that follows is meant to provide many guidelines and points of interest as you begin planning. Please understand that we want to help. At some point contacting us directly, coming into our offices for a visit and/or discussing your ideas with others in the agency business are strongly urged.

This toolkit (see below) is designed to educate and assist in the process of starting an independent agency, but it is up to you to make it happen. Building an agency from scratch is possible. Many accomplish this annually in Missouri. If you're successful, the rewards are considerable, including the ability to call your own shots, a healthy return on investment in the form of owner’s equity and the satisfaction of being in a business that protects people and their valuables. On the other hand, starting an agency from scratch is challenging ... and requires plenty of hard work.


Critical success factors necessary to make it:

  • Capital – While an independent agency is not capital-intensive relative to other industries, you can expect to need approximately $20,000 to $50,000 in start-up capital to pay for things such as office space, management software, fees, equipment and furniture, E&O insurance and marketing – and that doesn’t count resources necessary to live on while you build your customer base. Many have started with far less, however.
  • Access to insurance companies – You can get licensed but you can't sell insurance without access to insurance companies (carriers) and managing general agents. For property and casualty insurance, most companies are looking for a long-term relationship. Getting an appointment usually requires, among other things, experience in the business, a track record of successful marketing and selling, a marketing territory geographically desirable to the companies and a solid proposed business model. You will find most carriers insist on at least a few years of experience before entertaining appointments. Many also require detailed financial information and a solid written business plan before consideration.
  • Good sales and administrative skills – Some people have great selling skills and can make great insurance producers. Other people are terrific administrators and are service-minded. Starting an agency from scratch will require both sets of skills until you get large enough to hire others.
  • Thorough technical expertise – Customers are placing their risk management needs in your hands, therefore you need to understand the products you're selling. Depending on the lines of business you intend to offer, there are scores of different policy forms and coverage implications. Add to that the importance of understanding the risk management process itself, and you have a very knowledge-intensive profession.
If you're still interested - and we hope you are - this toolkit will walk you through the steps necessary to get started and provide resources to help you implement the steps where possible.

Additional Resources: 
How to Start an Independent Agency - Big "I"

Step 1: Laying the Groundwork

  1. Establish a realistic timeline. Starting an agency will take time. How long it takes depends on your situation and how much time you have to work on it. It almost always takes more time than you think it will. Expect at least six months to arrange financing (if necessary) and two weeks to obtain E&O insurance.
  2. Obtain qualified legal advice. This is necessary if you're in a current relationship that may involve non-compete or other contractual-related issues.
  3. Get an overview of the independent agency system and an introduction to basic insurance knowledge. If you have operated your own captive agency, you are ahead of the curve (especially if you were able to establish a book of business outside the captive market). You understand how an agency works and are versed in the technical aspects of insurance contracts; however, though there are many similarities between owning a captive agency and owning an independent agency, there may be just as many differences.
Downloads & Links
An Overview of the Independent Agency System - coming soon
 
Step-by-step instructions on Starting a Business from sba.gov.
​​​Create the Business Plan:

We will not bore you with the "not planning is planning to fail” lecture, but just about every industry relationship you need will require a formal written business plan. This includes carrier prospects for appointments and E&O insurance providers. The business plan consists of a narrative, resumes and several financial worksheets. The five things every business plan should address are:

  1. People - At its core, the fundamental value of any agency is in the capability of its people to execute its objectives. Therefore, your business plan should include information about the people who are responsible for executing it. At a minimum, include resumes on each of the key players that describe the professional and personal background relevant to the agency business as well as the knowledge, skills and abilities possessed by each. For start-ups, a lack of a demonstrated track record may inhibit your ability to attract prospective employees, customers and carriers. To mitigate this uncertainty, include an explanation of who you know and how you may be known in the community and/or industry.
  2. The opportunity - A key to agency success and of interest to all current and potential stakeholders is how the agency plans to acquire customers, including with what products and services and with what advantages over competitors. This section should demonstrate that you know who your customer is, what your products and services are and how you will position your products and services to be selected over those of your competitors.
  3. The business environment - Your business plan should demonstrate that you have a keen awareness of the external business environment in which you operate, that you understand its impact on your business prospects and how you will navigate and exploit it. The discussion should encompass regulation, the economy, labor supply, customer markets, suppliers, competitors and in what way the status of these factors is relevant to the operation of your agency.
  4. The risks - Many business plans, especially those that will be used outside the agency to attract other stakeholders, often make the mistake of painting only a rosy picture; however, risk is inevitable. The best business plan readily identifies and confronts the risks to be faced. Potential stakeholders, especially prospective carriers, will develop confidence in those agencies that pose the risks and provide strategies to resolve them.
  5. The numbers - You need to have realistic expectations of where revenues will come from and when and how cash will be used; furthermore, insurance carriers will be interested in growth projections. At a minimum, you should have a start-up budget, a cash flow forecast and a production forecast.  ​
Downloads & Links
​
Meet Legal Criteria:
 
  1. Choose an Entity - There are several broad categories to investigate when determining your business organization: sole proprietorships, partnerships, limited liability partnerships and corporations. While sole proprietorships are the least expensive and easiest to create, they carry a risk of personal liability for the owners. Partnerships and corporations can afford further protection for the owners, but require more paperwork and costs. You should discuss pros and cons of various types of structures with your legal counsel and tax advisor to determine the type of entity under which you want to operate.

  2. Register With the Secretary of State's Office - All businesses in Missouri must make filings with the Missouri Secretary of State's office. Such required paperwork may include corporate registration, fictitious name filing, etc. You may also be required to obtain a business license in your municipality or county, so check with local city and county officials for such requirements.

  3. Obtain IRS ID - The IRS requires a Taxpayer Identification Number for all entities. This number is used in the administration of tax laws. If your agency is organized as a sole proprietorship, your social security number is your tax identification number. If your agency is organized as a partnership or corporation, you are given a Federal Employer Identification Number (FEIN).
  4. Apply for E&O - Since this is a new independent agency, and most professional liability policies are on claims-made policy forms, your new E&O policy will have a retroactive date of the policy inception. In addition, since your agency is new and there is no previous information to reference, the E&O carriers will essentially have to underwrite you, as the owner, and your goals for the agency. E&O carriers will require a business plan and resume with all new applications. AMC (Agents Marketing Corp.) is part of a national purchasing group providing E&O coverage to members. For this reason, MAIA membership is required in some cases before your E&O application can be processed. 
    MAIA's E&O Page for Applications and More

    The association is here to help members succeed. MAIA also offers support through education, insurance market placement, technical advice, governmental advocacy and agency management support. 
    Why MAIA
    Agency Membership Application

  5. Obtain Licenses - Individuals working in the agency will obtain producer licenses for life and health or property and casualty based on what types of business they will handle. In addition, the agency must have a separate business entity producer license. 



Direct appointments with a variety of established carriers that have broad, competitive insurance products to offer is the ideal situation; however, they are very hard to come by unless you have at least a three-year track record and a sizable book of business that you will bring to the table right off the bat. For most start-ups, market commitments will have to come from a combination of a few possible direct appointments and/or a variety of indirect markets such as wholesalers, managing general agencies and market aggregators.

  1. Direct Appointments - MAIA's associate membership directory lists many of the insurance companies that operate through the independent agency system; however, most will only appoint agents who have some sort of established track record and/or are located in selected marketing territories. As an MAIA member, you also are a member of the Independent Insurance Agents & Brokers of America, giving you access to a number of markets it provides through Big "I" Markets.
  2. MGAs/Wholesalers - MAIA also provides a directory of member managing general agents and wholesalers that are receptive to working with new agents. Many will have little or no volume requirements and are compensated per transaction through commission splits and policy fees that are passed on to the customer.
  3. Market Aggregators - Market aggregators provide assistance to new agents in setting up their first agency office, access to otherwise unattainable markets and niche programs, the opportunity to obtain direct company appointments and a chance to share in the network's profitability. In return, these networks usually ask agents to pay a percentage of commission, a membership fee, or require them to give up a small stake in the value of the book of business built up through the aggregator. Be sure to review the contractual relationship with these entities carefully, especially as they relate to book ownership, commission or revenue sharing and exit costs.

Downloads & Links

Big "I" Markets

Membership Directories
Must be a member and logged in to access.

​A fundamental building block for today's successful independent insurance agency is a good agency management system that can provide a framework for all the necessary business processes. The most effective independent agencies have maximized the ability to operate as digitally as possible, minimizing double entry and moving paper. Agency management software can range in cost from less than $1,000 to $5,000 for a start-up operation with monthly fees of $60 to $600, depending on the level of sophistication you desire. It is advised that a new agency should not skimp on agency management software since it will pay in the long run to operate as electronically as possible. When you join MAIA, you also become a member of the Independent Agents & Brokers of America (IIABA). IIABA sponsors an organization made up of independent agencies, carriers and technology vendors called the Agents Council for Technology. The ACT website has numerous resources to help agencies harness technology to maximize productivity and profitability.

Downloads & Links

IIABA Agents Council for Technology

Automation Vendors


 

In Missouri, it is estimated that one in five agents will be involved in an E&O claim. One of the best ways to avoid this potential is to create and develop a written procedures manual. This document should be fluid and adaptable to meet the market and client demands, but should also establish some structured guidelines to enforce the way you want your business handled.
 
MAIA and IIABA have abundant resources in our "Virtual University" for helping you develop procedures for your agency. However, whether you purchase templates or create your own from free member downloads, this process is very time consuming and needs constant updating as your agency matures. Plan on spending a least a month to prepare your initial manual.

Downloads & Links

Virtual University (members only) 

 
Depending on your level of industry experience, or your level of expertise in the various lines of business you intend to offer, MAIA offers a broad array of training resources to fit your needs.

Downloads & Links

MAIA Education Calendar 

CIC

CISR

Risk Specialist Series

Webinars

Whether you need staff right off the bat or down the road, recruiting the right talent for the right roles is not easy, especially if you're doing everything in the agency yourself. IIABA's Career Center and Caliper testing is there to help when you're ready.

Downloads & Links

Big "I" Hires

Caliper Employee Testing