How to Start an Insurance Company – Things to Consider and Stimulating Tips

how to start insurance company

The idea of starting an insurance company is quite stimulating; the business is rather lucrative, and you will be making a difference in the lives of thousands of people as an insurance advisor. Because of uncertainties that life brings, every person today depends on insurance, and if you are an American citizen, you have to get an insurance coverage before you begin your career.

The market is promising and if you aren’t sure what the business entails and where to begin from, read on as we will tell you how to start an insurance company with simple tips and few essential things to consider that will determine your ability to start the business successfully.

Things to Consider Before Starting Your Insurance Company

1. Capital That You Need

The capital investment will depend upon the type of insurance company you are planning to open, your mode of operation, and the office location. You can start a simple insurance company with $10,000. However, if you are looking to open an expensive insurance firm with the best facilities and amenities, then you have to have a minimum of $1, 00,000 as an initial investment. While considering the start-up capital, you need to calculate expenses like rent, security deposit, office equipment, business licensing, agent license cost, insurance and legal permits, and agency management system.

2. Think About Your Office – Lease or Rent

You can either rent an office space, or buy a space or start your business from your home. Leasing or renting doesn’t entail any down payment, you will not be responsible for repairs and maintenance, and you can actually rent an office in an area that can improve your business visibility.

You can also buy an office space and make it your own. Having your own office will help you build equity, deduct interest payments, and earn a stable income by renting it out.

Or, you can build a home office and start right from your house and eliminate all of the above expenses.

3. Get Access to Insurance Carriers before You Begin

You need to have a stable business plan, an existing book of business and submit previous loss ratios to establish a great relationship with insurance carriers. Once you become a renowned agency and become a part of an aggregator, you will have more access to insurance carriers. However, as a start-up, we suggest that you start with only one or two.

4. Existing Book of Business – Buy or Start Your Own

Either you can go for an existing book of business, brought from a former agency or you can build your own clientele from scratch. Look at various factors, such as the level of automation and documentation, history of the insurance agency, files sorting mechanism and the current market value of the book. Get legal advice from a lawyer before you buy the book of business.

5. Go Solo or Join a Cluster Group

If you join a cluster group, you will be able to meet the sale requirements easily. A cluster group is an association of several independent agents. In here, you will be working together to pool business to qualify for appointment by bigger insurance companies.

Joining a cluster has many advantages, such as increased negotiation commission rates, agency management software, an ability to quote specialty insurance, etc. However, you will have to pay an initiation fee to be a member of the association.

6. Calculate Your Profits and Your Earnings

You can determine your profitability through your projected sales, gross profit estimate and your service charges. You have to take into account other miscellaneous expenses also. On average, you will make around $40,000 per year. However, the income of your firm will vary based on factors, such as your qualifications, state, region, experience, number of customers, and the insurance type.

7. Choose One – Generate New Leads or Build Customer Base

If you want to get new customers quickly and easily, we suggest you ally with local real estate agents or offices. Alternatively, you can use the traditional word of mouth marketing philosophy to generate business rapidly.

You can also network with real estate businesses or other businesses to which you can sell your type of insurance. Online marketing is one of the trending and most profitable ways to see staggering growth in your business. The first step towards online marketing is building a website for your business. Create accounts on different social media platform and stay active on them by posting about your work regularly.

Give your company a professional appearance by designing and circulating brochures and business cards. Also, boost your brand image by using various promotional tools, like bloggers outreach, discounts, and other marketing strategies.

8. The Type of Licensing You Require

You need to be licensed in order to sell insurance. Your country and the state you live in, and your services offered will determine your insurance type. You may have to get multiple licenses and permits for the type of insurance you plan to sell.

Get in touch with your city’s or state’s insurance licensing board and find out what kind of obligations you have to meet. You may also have to take certain courses and training to become a certified insurance advisor.

If there is a licensing course, then we advise you to register for the state licensing exam to take them. They are the most reliable and authentic. Don’t go for any private examination center.

Essential Tips for Starting an Insurance Company

  • Learn as much as you can about the insurance industry. Gain in-depth insights, know the figures and determine your competitors. Learn about the popular insurance products, the size of your target market, and the health of the insurance workforce. Make sure you know your business’ barriers to entry and forecast the foreseeable future.
  • Gain hands-on industry experience. It is always better to put your knowledge to practice before you do something big. Research is good, but putting the research to test is even better. If you start out as an insurance professional yourself and gain experience upfront, you will stand a better chance at being successful in your insurance business endeavor. We suggest you start by getting your license and finding employment as a broker in a well-established and multi-faceted insurance company. Working under the guidance of a veteran will bestow you with the much-needed knowledge for commencing a successful business journey.
  • Have the capital cost ready before you start your business. The best way to know how much money you will need for your start-up is by drawing a business plan. A detailed business plan will give you an accurate picture of what you will need to spend in terms of business assets or resources. If you do not have the required funds, you will need to raise a capital. You can fund your business through several ways, such as take up a loan, borrow from your friends and family, start a crowd funding campaign, or look for an equity investor.
  • It is important that you know what kind of business you are planning to structure. The structure of your business will define the identity of your company. You can register your business as a sole proprietorship, or Limited Liability Company, as a corporation or as a general partnership. Since insurance companies are usually exposed to various kinds of risks, it is important to select a structure that will protect you from the company’s liabilities. That is why most consultants suggest insurance start-ups to commence an LLC or a corporation.
  • Insurance is still a traditional kind of business, and although the internet has enabled us to carry most of our businesses online, insurance companies still need a physical address. You need an office to make your potential customers sit and walk them through different insurance policies and their pros and cons. Insurances come with several risks, for both the policyholder and the agents; therefore, a physical location gives clients the much-needed security they look for when establishing a business relationship. If you are hiring salespeople, be keen on recruiting smart professionals with good knowledge about the industry. They are the lifeline of insurance companies, so be keen to choose the best staff only.
  • Do not forget to use social media to market your company. Social media marketing is great for advertising new business. Facebook, LinkedIn, Instagram are trending social media platforms for building a positive public perception. If you market through social media, you will enjoy boosted brand recognition, increased customer conversion, enhanced search engine ranking and lessened marketing expenses.
  • Insurance certifications can double your earning potential, professional growth, and business security, and can give you recognition of a sole insurance company owner. Although it is not a requirement, an earned designation can always work as a powerful marketing weapon. In order to become a certified professional, you may need to take certain insurance examinations or courses. Some of the certification courses can take up three years of qualification time. The choice is ultimately yours.

If you are looking for more tips about other start-up ventures, keep reading our blogs. If you want your questions answered, please post your thoughts on the comments.