How to establish your insurance brokerage business

by Ed Sneineh, CLU, ChFC

Establishing an insurance agency business requires the same talents and dedications that any other business requires. Proper planning, persistence, and consistence are the essential elements for  success in any venture. There are certain important factors that distinguish the insurance brokerage business from  other business ventures.

Proper Licensing: To become an insurance broker you need to be licensed for the lines of business you intend to sell/ broker. For example, brokering life, health, property or casualty, or a combination of those requires state licensing. Check with the department of insurance of the state where you reside for the proper licensing/ bonding requirements. If you plan to be brokering insurance to clients in different states you need to obtain a license from  those  states as well.

If you intend to run the business as an incorporated business (very much recommended), you need to obtain the proper article of incorporation, and then apply for an insurance producer license for your new business entity. In the state of Illinois you can incorporate yourself online, and it can be done on expedited basis (overnight).

Now, after you, the individual producer, and your business entity are properly licensed with the state(s), you will need to find a location. You can start by looking around to share space with other professionals, such as accountants, real estate agents, travel agents, or lawyers. Sharing an office is good in the beginning because it saves you rent expense and because it exposes you to the traffic that you need. If your budget allows you to rent a separate  space, choosing a busy mall is the best idea, especially if you will be focusing on auto insurance and business insurance. Heavy traffic is free advertisement.

At this point you will be able to sell insurance. The issue is what insurance to sell, which can be confusing. Many agents find it hard to focus on more than 1 or 2 lines of insurance. Selling life insurance requires great deal of salesmanship, however the commission is the greatest. Selling health insurance still requires salesmanship, average demand, the commission is good and so is the renewal. Business insurance is easier to sell (most businesses must have insurance), the commission is good, but it requires experienced customer services. Selling auto/ home insurance is perhaps the easiest, the commission is the not as great, and it requires extensive customer services.

Selling insurance as an independent broker can be done through different ways: First you might seek appointment directly with insurance companies. It is very easy to get appointment for the life and health insurance lines, but when it comes to auto and commercial insurance, appointment with insurers get little more difficult. Most property and casualty insurers require experience, and Errors and Omission coverage for your agency. Errors and omission (E&O) for life and health agents is easy and inexpensive to obtain, but when it comes to errors and omission for property and casualty agents things become harder. Experience, education, and character are very important when obtaining errors and omission coverage, which is certainly much more expensive than E&O coverage for life and health  brokers.

Most companies, especially the reputable ones, will stay away from agents without experience. That is why you should target less known regional or local companies for appointment. Also, you can approach a local broker who will accept to place your business under their contract and share with you the commission (you get the experience and the access to the insurance carriers.) Many larger brokers and MGAs (Managing General Agents) are willing to do that.

Marketing your agency is the most critical task. There are lots of great agents and agencies in the market place, therefore there has to be something different about you and your agency for people to become your customers. Why do people need to come to you and become your customers? The answer to that should be the backbone of your marketing campaign.

You can design very complicated and expensive marketing campaign, but always keep in mind that advertising an auto insurance agency is not the same as advertising a life insurance agency. Selecting the target market is very important because it will determine the which product to sell (ie standard vs non standard auto), and it will determine the marketing campaign (newspapers ads, direct mailing, TV commercials, internet, etc.)

Regardless of the size of your agency, your staff will make you or break you! Proper recruiting, training and incentive oriented  compensation are the keys to the success of your business. Your employees are your connection with the customers.

Capital Requirements: A starting agency needs between $15,000 to 50,000 for initial setup, and marketing startup. This includes computers, printers, fax, scanners, signs, files, advertising materials, office furniture, licensing, and minor remodeling.

The following are some sources that can help you getting started:

Find the requirement to get your insurance license (individual and business entity):
Check your state's Department of Insurance
In Illinois: http://www.insurance.illinois.gov/producer/producer_information.asp

Find how to incorporate yourself online:
To do it yourself, check your state website. You also can have a bookkeeper or a  lawyer (for a fee) do that for you.
In Illinois: You can incorporate yourself online at http://www.ilsos.gov/corparticles/

Find how to get your FEIN online:
Check the IRS website at https://sa2.www4.irs.gov/modiein/individual/index.jsp

Some online brokers that give you access to preferred markets:
Insurance Noodle (http://www.insurancenoodle.com) and Agent Secure (http://www.agentsecure.com) are two national agencies that will allow you to get access to preferred markets. In Illinois check http://www.insurancenavy.com

Providers of Errors and Omission Coverage:
US E & O Brokers- http://www.useo.com/
In Illinois: See http://www.insurancenavy.com

Get lists of companies to deal with/ software to manage your agency and  MGAs to  place business with:
Check the website of the Ultimate Insurance Links at http://www.ultimateinsurancelinks.com/

Finally "Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude. " Thomas Jefferson

Insurance Navy, 4717 N Pulaski Rd, Chicago, Illinois 60630 (773) 478-3700. We stay focused on Auto Insurance in Chicago Illinois and low rates for Illinois SR22

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