How to Start an Independent Agency
The New Agency Toolkit is a brief but thorough rendering of the steps necessary to start an independent agency. This toolkit 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. 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. IIAK brings this toolkit to you with the help from our friends at the Independent Insurance Agents of Texas.
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 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:
- People – At its core, the fundamental value of any agency is in the capability of its people to execute its objectives. Your business plan should include information about the people who are responsible to execute 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.
- The opportunity – A key to agency success should demonstrate your knowledge of your customer, your products and services and how you will position your products and services to be selected over your competitors.
- The business environment – Your business plan should demonstrate that you have an awareness of your business environment, the impact on your business prospects and how you will navigate it. The discussion should encompass state regulations, the economy, labor supply, customer markets, suppliers and competitors.
- The risks – 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.
- 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.
Meet Legal Criteria
- Choose an Entity
There are three broad categories to investigate when determining your business organization: sole proprietorships, 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 cost.
Obtain IRS ID
- Choosing a Form of Entity
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).
How Do I Become An Agent in Kentucky
Apply for E&O
Prior to applying for an entity license with the Kentucky Department of Insurance, you will need to get errors and omissions coverage.
Professional liability policies are written on a claims-made basis. Your new E&O policy effective date will become the retroactive date. Since your agency is new and there is no prior information your E&O carrier will have to underwrite you and your goals for the agency. E&O carriers will require a business plan and resume with all new applications. IIAK is part of a national purchasing group providing E&O coverage to its members. For this reason, IIAK membership is required to issue an E&O policy, however, you can receive a no-obligation quote without being a member.
The association is here to help members succeed. IIAK offers support through education, insurance market placement, technical advice, governmental advocacy and agency management support.
Secure Market Commitments
Direct appointments with a variety of established carriers that have broad, competitive insurance products are ideal; however, they are very hard to come by. Most agents must have at least a three-year track record and a sizable book of business to qualify. For most start-ups, market commitments will have to come from a combination of a few direct appointments and/or a variety of indirect markets such as wholesalers, managing general agencies and market aggregators.
- Direct Appointments
IIAK has numerous Industry Partners who attend IIAK functions on a regular basis. These functions provide an opportunity to meet company representatives one-on-one. Also as an IIAK member, you are a member of the Independent Insurance Agents & Brokers of America (IIABA), giving you access to a number of markets it provides.
Big "I" Markets
- Eagle Agency
Eagle Agency is an independent agency operated by the IIABA. It is an exclusive personal lines benefit for Big “I” members. As an Eagle Agent you maximize independence by choosing either to be appointed to sub-produce policies or just simply submit personal lines business on the Big "I" Markets website for quote and issue as needed. For both options the Eagle Company Partners are the same: Travelers, MetLife Auto and Home, The Hartford and Progressive. If you choose appointment there is a minimum required two (2) new lines policies a month for each Company. If you are not sure the Agency can commit to two new line policies a month, choose Eagle Express. There is no minimum per month policy requirement with Eagle Express.
Choose an Agency Management System
A fundamental building block for today's successful independent insurance agency is a good Agency Management System (AMS) that can provide a framework for all the necessary business processes. The most effective independent agencies have maximized the ability to operate electronically, minimizing double entry and moving paper. When you join IIAK, you also become a member of the IIABA. They sponsor an organization made up of independent agencies, carriers and technology vendors called the Agents Council on Technology (ACT). The ACT website has numerous resources to help agencies harness technology to maximize productivity and profitability.
Establish Workflow Procedures
In Kentucky, 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.
As an IIAK member, you can receive access to a sample procedures manual and Personal/Commercial Lines checklists.
IIAK has partnered with The Moberg Group (TMG), an E&O Consultant and Auditor, to offer special pricing to our members. If you participate in an E&O audit TMG will provide a FREE Agency Operations and Procedures Manual. You can also receive a five year 10% premium credit off of your Westport E&O policy for completion and compliance of the TMG review.