There are two types of insurance agents. “Exclusive" agents represent a single insurance company, and “independent" agents represent multiple insurance companies.
Independent insurance agencies are separate from the insurance companies they represent, allowing them to offer insurance from more than one company and select the policies that best meet their customers' needs.
Your independent agency will need to have a contract with each insurance company you represent. The contract describes the duties of each party.
Many exclusive insurance agent companies also contract with independent agents. This was not always the case, but over time many exclusive companies have recognized the close relationship that independent insurance agents have with their clients.
Can people buy insurance directly over the internet? Certainly! But there are many aspects to insurance policies that people don't know about. They would have to go to multiple companies to compare quotes. And if they have to make a claim, they would have to deal with the insurance company on their own.
Independent insurance agents make insurance shopping much easier for customers by providing quotes from several companies. Most people have questions about insurance and may prefer to talk to someone about their concerns. Independent agents build relationships with their customers and use technology to serve them in a variety of ways.
There are some benefits to starting your own independent insurance agency from scratch. However, there are several possible drawbacks.
Joining an insurance trade association like the Big “I" will help you understand the necessary steps and provide the resources for you to push off from shore. And it's not just about insurance knowledge. You'll want to learn about the insurance technology solutions available to help you.
- Startup costs: Obviously when you start a new agency, you'll have to build everything from scratch. Fortunately, there are vendors providing insurance-related services such as quoting tools, accounting, automated marketing and websites.
- For many people, forgoing a paycheck is a big consideration. Startup costs of a new firm can be expensive, but a smart business plan for someone with marketing, sales and/or general business knowledge can help the success rate. Some people start studying for insurance licenses in their free time while they're still earning a paycheck from their employer.
- A few people might have the capital to buy an existing agency. But most startup agencies require a lot of time and energy to launch the firm until enough revenue can be earned.
- Unknowns: There are many risk factors with starting a new agency. There's no guarantee you'll generate an instant customer base or attract insurance companies that want to do business with you right away. However, resources and business models can help a startup agency get appointed with insurance companies. You should consider the trade-offs in these approaches before signing up with them.
- Hiring employees: As with any new business venture, there will be staffing decisions. Some functions can be outsourced and don't require hiring full-time employees. This is a fundamental question that your business plan should address.
Starting a new insurance agency can be extremely rewarding. Carefully weigh the pros and cons of the path you choose to take.
How much does it cost to start an independent insurance agency?
When starting any type of business, you'll need to have plenty of capital up front to keep yourself afloat. It might take quite a while, sometimes up to several years, for your independent agency to eventually start turning a profit or break even with your initial investment. Calculate how much you need to pay your living expenses apart from running the agency.
Most insurance carriers pay commissions based on when the premiums are paid by the customer. Businesses and personal lines customers sometimes pay monthly, quarterly, semi-annual or annually. The agency's commission will follow the schedule that the customer pays.
Since premium payments will vary based on the customer's schedule, it can be challenging to budget monthly commission revenue for a startup agency. The good news is that the property/casualty insurance commissions will continue as long as the customer renews their coverage.
For individual life and disability insurance, insurance companies typically pay a larger commission in the first year. Smaller commissions follow in later years.
It's important to maintain an ongoing customer relationship for additional sales, referrals from your customers' friends and relatives, and the opportunity to sell additional policies like home and car insurance to your life and health insurance customers.
For a startup insurance agency, being licensed to offer life insurance along with property/casualty insurance can help provide more up-front commission revenue. Even if you want to focus on property/casualty insurance, getting licensed for life/health insurance means you can share commissions if you refer business to a life/health insurance agent.
What about the cost for the required courses to study for your licenses? They're not expensive. However, there are other startup expenses such as creating an attractive website and buying computers and other technology tools.
Depending on your business plan, you should have a minimum of at least $5,000 set aside in the beginning. You might even need as much as $50,000, depending on rent, furniture and other equipment.
Estimate the potential revenue from the number of policies you'll need to sell to reach a break-even point. Of course, the amount needed for living expenses is a big factor as well.
Lastly, do you have a wide group of social and business acquaintances in your community? That's an asset that'll help you grow. Most independent agents get involved in service organizations and nonprofit boards. However, many business and personal lines customers won't want to consider changing insurance agents until their annual policy renewal, unless they are experiencing a service problem.
What insurance licenses do I need?
The insurance licenses you need to run an independent agency vary depending on your state. All states have different categories for these licenses and their own specific requirements.
A few common license categories are:
- General property and casualty licenses allow you to sell property and casualty policies. Losses relating to property damage, natural disasters, theft and vandalism that impact businesses fall under this category. Other special types of coverage can include liability, cyber insurance, workers compensation and commercial auto insurance.
- Life and health licenses allow you to sell life insurance and/or health or accident insurance policies. Expenses relating to serious illness, prescription medications and treatments fall into this category. Other types of policies can include disability insurance, long-term care insurance, and dental and vision coverage.
- Personal lines only licenses allow you to offer policies under personal lines, including home insurance, renters insurance and car insurance. Claims relating to flood, hail, windstorm, fire, earthquake and personal liability fall under personal lines.
- Solicitor licenses apply to those who sell leads of potential insurance customers to independent agencies. Solicitors have no ownership stake in the independent agency.
- Temporary licenses may be granted in some states when there are unique or extenuating circumstances. Whether you're allowed to sell policies with a temporary license depends on your state's regulations.
Understand which types of licenses you'll need to operate your independent agency before you get too far in the planning process. Without the proper licenses, your agency might not be able to sell insurance to families or business clients.
How much can I make as an independent insurance agent?
Initially, most of your time will be spent on finding new customers. Over time, be sure your firm can service its existing customers. In the insurance industry, holding onto customers is known as “retention." Successful insurance agencies have a retention rate of 90% or more.
For property/casualty insurance agencies, retention is a meaningful goal because the commissions are recurring. Of course, new sales are important to allow the agency to flourish. Successful independent insurance agencies strive for a balance of high retention and new sales.
Independent insurance agents make an average of 10% to 12% in commission per insurance policy they sell. So, if an agent sells one car insurance policy with an annual premium of $1,000, they will receive $100 to $120 annually in commissions. Home and business insurance have similar commission levels.
To receive policy discounts for the customer, many independent insurance agents try to “bundle" car and home insurance policies with the same insurance company. It's a win-win for the customer and the agent when policies can be bundled to the customer's advantage.
In short, successful independent insurance agents can make a comfortable living while serving their communities.
What is the Big “I"?
The Big “I" is a national trade insurance federation. It consists of more than 50 independent state associations as well as the national association. Its mission is to provide support for independent agents and brokers by offering membership benefits and resources such educational tools, informative publications, networking and more.
These associations also serve as advocates for independent insurance agents by working with insurance companies, state insurance departments, the federal government and other stakeholders to maintain a stable and viable marketplace. Through the collective efforts of the Big “I," independent agencies are better equipped to thrive.
What are the benefits of a Big “I" membership?
When starting your own independent agency, there are many ways a membership with the Big “I" can help. Here are just a few benefits of a membership for a startup independent agency.
- Access to Big “I" markets: A Big “I" membership provides access to more than 30 top-tier insurance markets, including commercial auto, homeowners, flood and specialty types of insurance companies. This benefit comes with no extra fees.
- Research and surveys of successful independent insurance agencies: Big “I" studies classify top-performing agencies in six revenue categories, from small to large. These surveys help new and upcoming independent agencies tailor their operations and strategies for success.
- Access to Independent Agent magazine: Big “I" members receive a monthly copy of this magazine and weekly digital articles, including market trends and analysis to help agencies succeed.
- Assistance with hiring: Big “I" membership provides hiring tools, and it provides access to interview resources and job descriptions to help your new agency hire top talent for your team.
- Access to Virtual University: The Big “I" Virtual University provides new independent agencies with a huge research library on numerous subjects, including certificates of insurance, commercial lines and personal lines. It also has experts standing by to answer tough coverage questions.
- Insurance company contract reviews: Periodically, the Big “I" Office of General Counsel reviews and provides observations of key provisions of insurance company agent agreements.
- Branding resources through a consumer brand, Trusted Choice®: Being independent doesn't mean going alone. Trusted Choice, the recognizable consumer brand from the Big “I," provides a host of tools, with a special emphasis on digital marketing and branding. You don't give up your agency's identity; instead, you co-brand your agency with Trusted Choice to explain to your customers what is different about independent insurance agencies.
- Agency listing on TrustedChoice.com: Big “I" member agencies appear on the largest directory of independent agencies available to consumers. TrustedChoice.com has driven more than 30 million insurance shoppers to independent agents over the last few years.
Just as independent agents are an insurance customer's greatest ally in finding quality and affordable coverage, the Big “I" is an independent agency's greatest ally in running a knowledgeable, successful operation.
How to sign up for a Big “I" membership in your state
Signing up for a membership in your state is easy. Just fill out the online form to get started. Pricing varies by state, agency size and revenue. If you have any questions, the Big “I" is standing by to assist you.