New Agency Toolbox
Ten Steps to an Independent Agency
Starting an agency from scratch is possible, but also challenging. Owning an agency gives you the ability to be your own boss, have the satisfaction of helping people protect their valuables and investments, as well as provide you with good income potential for now and into your retirement. Big I Maryland is here to help guide you on your journey towards independence.
Establish a realistic timeline. Expect at least six months to arrange financing and two weeks to obtain E&O Insurance.
Obtain qualified legal advice. This is necessary if you’re in a current relationship that may involve non-compete or other contractual related issues.
Get an overview of the Independent Agency System. 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, for as many similarities between owning a captive agency and owning an independent agency, there may be just as many differences.
Just about every industry relationship 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. Therefore, 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. 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 whom you know and how you may be known in the community and/or industry.
- 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.
- 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.
- 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.
- 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.
Choose an Entity: There are three broad categories to investigate when determining your business organization: sole proprietorship, partnerships and corporations. While sole proprietorship 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.
Register with the County or State: All businesses in Maryland operating under an assumed ‘trade’ name must file a Trade Name Certificate with the State. Partnerships and corporations must file a Trade Name Certificate with the Maryland Secretary of State. Check with your city or county court clerks to determine if a filing is required there as well.
Obtain Licenses: For a sole proprietorship, a property and casualty license is issued to the individual; however, the individual must file a form to register a trade name under which he or she will be operating. For partnerships and corporations, the entity must have a separate license filed with the Maryland Insurance Administration. Application for Maryland licenses are through the National Insurance Producer Registry or NIPR. Keep in mind, this information is for Maryland only. If you plan to sell, solicit or negotiate insurance in another state, a non-resident license will be required for that state in addition to your resident Maryland license.
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).
Obtain E&O Insurance: Prior to applying for an entity license with the Maryland Insurance Administration you will need to get errors and omissions coverage.
Insurance Brokers Service Corporation, Big I MD’s for-profit insurance agency, is part of a national purchasing group providing E&O coverage to members through SwissRe/Westport and also part of a national program for Fireman’s Fund. For this reason, Big I MD membership is required before your E&O application can be processed.
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 good size 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.
- Direct Appointments: There are many carriers writing insurance in Maryland 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 IIAM member, you also are a member of the Independent Insurance Agents & Brokers of America, giving you access to a number of markets it provides.
- Big “I” Markets/MGAs/Wholesalers: Big “I” Markets as well as many managing general agents and wholesalers are receptive to working with new agents. Many will have little or no volume commitments and are compensated per transaction through policy fees that are passed on to the customer. It is important to work with an established and reputable E&S market, which can assist with placement through MGAs, etc.
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.
What does it take to get a company appointment these days? Companies don’t usually come looking for you, so you should approach company marketing departments in a way that will enhance your chance for a successful conclusion.
Choose An Agency Management System (AMS): 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 Big I Maryland, you also become a member of the Independent Agents & Brokers of America, IIABA/Big I. IIABA sponsors an organization made up of independent agencies, carriers and technology vendors called the Agents Council on Technology. The ACT website has numerous resources to help agencies harness technology to maximize productivity and profitability.
Establish Workflows/Procedures: In Maryland, it is estimated that one in four 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.
Enhance your visibility to consumers using the Internet and Social Media
Develop a Website: This will be your starting point to reach consumers and highlight the value of your agency.
Big I Maryland has preferred vendors and discounts for website development, logo design, and hosting through Titan Web Marketing Solutions.
If you already have a website, our members receive a free Digital review, which provides a one-on-one consultation and detailed report on how you can improve your existing website and social media channels.
Marketing: It is crucial to establish a plan that incorporates social media and digital advertising. This will help enhance your visibility in your local community.
Trusted Choice is the National Brand for Independent Agents. Trusted Choice can help amplify your local marketing efforts and gain access to referrals by offering a variety of logo options, campaigns and as an added bonus Trusted Choice will reimburse a portion of your marketing expenses for co-branding!
Referrals: Big I Maryland members receive a free profile on TrustedChoice.com where consumers can search for local independent agents in their area and begin the online quoting process, which could potentially drive additional business to your agency.
Licensees in Maryland must complete 24 hours of CE every two years in the line for which the license is held with at least 3 hours in Ethics. (For those licensees holding multiple authorities Life & Health and Property & Casualty must complete 24 total hours with 50% of the hours in Life & Health and 50% of the hours in Property & Casualty courses – this must include 3 hours of Ethics training).
Flood Insurance: All Maryland producers who sell flood insurance are required to complete a 2 hour approved Flood course every renewal term.
Bail Bonds: All Maryland producers who sell bail bonds are required to complete 4 hours of Bail Bonds CE.
Depending on your level of industry experience or your level of expertise in the various lines of business you intend to offer, Big I Maryland offers a broad array of training resources to fit your needs.
Big I Maryland offers our members an opportunity to complete these required hours, but also to obtain professional designations in the process.
Big I Maryland has the resources you need to help you find, hire, assess and engage your team.
Recruiting & Hiring
Big “I” Hires: A one-stop resource designed to help you find, attract, assess and hire top performing staff and producers.
Career Corner: Our career corner was created to offer our members complimentary job postings.
Training & Managing
MyAgencyCampus: A training solution that provides training for new hires, job changes and emerging leaders.
Inbound Phone Sales Training – Trusted Choice: A training system designed to help you close more business and grow sales.
Developing relationships within the insurance industry will help ensure your success.
Big I Maryland offers a number of events throughout the year hat help our members build long-lasting relationships with mentors, carries, and other Big “I” partners.
You can also get involved within the Association by joining one of our committees.