Opening Your Agency

If you are a corporation or limited liability company (LLC), you have to apply for and receive a license for your agency. Of course, you and your salespeople must be individually licensed, so you need at least two licenses. If you are the only licensed salesperson in your company, you need one for yourself and one for your agency. If you are a sole proprietor, you just need to license your "doing business as (dba)"; you do not need two insurance licenses.

A corporation or LLC must have an organizational license in place with each licensed salesperson endorsed on that license. You must do this before you start selling. Don't make the mistake of producing business without being licensed first. In California, you can get licensed by visiting the Dept. of Insurance Web site and the situation is the same in most other states.

2 Purchase, install and implement an agency management system

To hit the ground running and service your clients, you must have an agency management system in place when you open for your first day of business. If you have been a producer, you've had exposure to agency management systems where you worked, so you should have some familiarity with an agency management system.

The best known and perhaps most expensive are Applied and AMS. The www.Capterra.com Web site allows you to compare agency management systems to fine the one that best suits your new agency.

The most expensive is the system with all of the information stored locally on your server or computer. A less expensive and popular alternative to the onsite system is an online system. In the case of Applied, it is known as TAM online. The system is downloaded from the Internet and the cost of the system includes extensive training on each of the modules.

The online option is cloud computing for the insurance industry. All of your files are backed up and stored offsite at the agency management servers. The software and applications reside on servers owned by the agency management system. The agency management system includes separate interrelated modules for your customers' policy and risk information, claims and company and accounting information for your agency. It is a large database with e-mail, Internet and scanning functions. You can't file your transactions. The potential problem with an offsite Internet model is that if you decide to go with another management system, all your information is in a proprietary system of another. A positive feature of this type of system is that you don't have to go through the cost of backing up your system; your agency information is already stored offsite.

Be prepared to spend at least $10,000 for a good comprehensive system. Remember to get a scalable system that will accommodate your agency's growth.

3 Have financing available immediately and a business plan for the future

Nothing can stop you in your tracks like running out of money. Arrange your financing before you open your shop. Banks don't like to loan to new business owners; the credit risk is too great for many of them. And don't count on commissions to fill the coffers right away. In the property-casualty field, broker of record letters only yield commission if the policy is renewing, and mid-term changes, if the company accepts, will not yield commission payments until the policy renews. Be conservative when figuring how much money you will need to survive until the revenue starts rolling.

Don't blow smoke to your spouse or partner about how rich you are going to get opening your agency. It won't happen overnight. Be honest with them and yourself that it will take time to become fiscally solid. If you are willing to go through the work, hardship and risk of opening your own agency, you are doing it for more than just money.

This is your dream and yourself that you are investing in, and you need to see the money and effort you put into it as a long term process that will not pay off at once. Be very realistic that you will have at least three months and possibly longer of not having enough to pay the bills during your formative stage.

4 Line up your carriers

There are three ways you can go about getting carriers to write your business: get an individual appointment with the companies you currently have business with, become part of an agency cluster, or access companies through wholesalers.

The first way works well if you have a substantial book with a particular carrier, underwriting contacts at the company and have shown an underwriter's discipline in placing good business with a low loss ratio with the company. Your previous employer might try to intercede and keep you from getting an appointment. Hopefully you won't have an acrimonious relationship with your previous agency so you can move quickly and get your business placed when you start. The longer your book is with your previous agency, the more likely it is to stay and not go with you.

Clusters are a good choice if you need companies but don't have enough volume to get appointments on your own. Make sure you know your obligations to the cluster in terms of monthly membership fees, commission and contingency splits, and the degree of ownership of your business. Also find out ahead of time if you can communicate directly with the company underwriters or if there is centralized marketing performed by your cluster.

Wholesalers can work alone or with individual appointments or clusters. In exchange for several points of commission to the wholesaler, you can access companies directly. Although you don't get contingencies on the business and you give up commission, you retain control of the business. There is a tradeoff between commission and control of the business when you place your business with a wholesaler. Because it is relatively easy to move the business when you get an appointment with a company, using a wholesaler is usually seen as an intermediate step to obtaining an appointment with that carrier.

5 Visit your clients, companies, prospects and vendors

Don't get so caught up in setting up your new business that you forget to include your current clients. After all, they are your success or failure. If they don't come over, it will take you a lot longer to write new business. Call, text and e-mail them, and above all, go see them and look them in the eye when you tell them why you're opening your own agency. And if you are asking for a broker of record letter, you owe your clients a visit because by signing they are giving you a huge vote of confidence in your future success.

Advertise your new office location and have an open house. Advertising is a good way of getting news out about your new situation and will reach clients and prospects you may not have been able to reach directly.

6 Partner with vendors

You will need accounting, printing, financial, legal and computer services to run your business. Find vendors who are hungry like you, who perhaps opened up their own business as you did. Go with your insureds or ask them for their insurance after you become a client. Make your vendors your business partners. If you don't know of someone in a particular field, do what some of your clients did to find you: Call your business associates and ask them who they use.

Don't assume the one who charges the most will be the best quality. For instance, if you choose an accounting firm that charges top dollar, you might get assigned to a junior partner because at this stage in your agency, when you are economizing, you might not be paying as much as some of their more established clients. Call your vendors on a Friday afternoon and see which one calls you back and how long it takes. This is a good test for how responsive they will be when providing their service or product to you.

It takes nerves of steel, a big bankroll and a lot of drive to start your own agency. But speaking from my own experience, I can honestly say that owning your own independent agency is one of the most challenging and satisfying ways to earn a living. Getting that business off on the right footing can make the difference between failure and success.