How To Start An Insurance Company From Scratch
A Step-by-Step guide for entrepreneurs to start an insurance company from scratch.
Entrepreneurs these days try to tap into industries of their profession, but if you’re unsure, you should incline towards the insurance industry.
Insurance is an integral part of people’s lives today. They have life insurance, home insurance, auto insurance, etc., which gives a lot of room for business opportunities. And if you’re thinking of jumping in, maybe starting an insurance company is your answer.
But let’s face it, as much as starting an insurance company from scratch can be exciting, it is equally challenging as well. This is how you can begin.
Steps to Start an Insurance Company
Here are some necessary steps and tips you need to be mindful of while starting an insurance company.
Step 1: Research
While it may sound more comfortable just to jump in, it is a bad idea! It is always advised to do proper research on insurance companies, the industry, your target market, and learn everything about the insurance industry. Get a consultation from experts, learn the finances and management, ask about the dos and don’ts from experienced people. Having a detailed understanding is very important.
I would also advise you to have an extensive understanding of types of insurance and how they play out in different markets and what their clients are like. Just to have a basic overview, these are the most common types of insurance that you can specialize in:
- Life and Annuities Insurance
- Health/Medical Insurance
- Auto Insurance
- Pet Insurance
- Agricultural Insurance
- Aviation Insurance
- Financial Reinsurance
- Guaranteed Asset Protection Insurance
- Group Insurance
- Inland Marine Insurance/Marine Insurance/Shipping Insurance
- Travel Insurance
- Liability Insurance/Professional Liability Insurance
- Property and Casualty Insurance
- Mutual Insurance
You can specialize in either one of these insurance types and have your company offer just those to clients. But before that, you need to have excellent knowledge and experience in it.
Step 2: Choose your Company Structure
What organizational structure will your company look like? Will it be an LLC, sole proprietorship, partnership, etc. Each of these structures has its share of risks and rewards that come with time. Even though sole proprietorship is the easiest and simplest structure, it may not suit your needs. You may not have the funds to start up your own insurance business, so whatever suits your needs best should be your answer.
Step 3: Business Plan
Having a kickass business plan in force is extremely important! This comes in handy when you’re looking for people to invest in your business, and for this, a comprehensive business plan should be able to convince potential investors.
Your business plan should be concise and to-the-point, BUT should not miss out on any details. It should be a detailed document that explains your strategies, how you will bring in clients, budgeting, when and how you will reach breakeven, etc. Every technical, financial, and administrative detail should be included in the business plan to convince your clients.
Step 4: License
Here’s the tough part: acquiring a license for starting an insurance company requires a lot of effort and time. Before getting a permit, you will be required to pass an exam and complete 50 hours of coursework. And probably 20 hours of ethical courses. The fee for this can roughly range from $300-$500 each.
In the US, licensing can be obtained by the National Association of Insurance Commissioners- an organization that regulates the insurance industry. If you plan on having more agents enter your business, you will need an agency license. The process and rules differ from State to State, but generally, there is a simple exam that you need to pass to get that license. You also have to get the agency’s name registered; make sure the name is related to the work and easy to remember.
Step 5: Finances
The most crucial aspect of any business is financing! Where do you get the money from, and where do you spend it. Securing your financial position even before you start a company is advisable.
How much money do you need to start an Insurance Company?
Well, roughly an average insurance company requires a start-up capital of around $5,000 to over $100,000 to have the business up and running. This amount will be used to launch the company and used as a safety net to help you with operating costs and a steady income for almost a year.
Don’t overwhelm yourself with this much money, spend wisely, and only on essential things that favor the business. Think about cutting costs- if you start a home-based company, you won’t need to pay rent or extra utilities.
Step 6: Marketing
Now that you’ve launched your business, what you need to do next is create a brand identity. What does your insurance company look like, what does the merchandise look like? This will help you market your product in an organized way.
Since you’re new, you’re also financially tight, so spending a huge chunk on marketing isn’t a good idea. Look for social media marketing, word of mouth, and spend very little on printing on brochures and flyers.
These steps are just the basics of what you need to do before jumping in on an insurance startup; there are so many steps that come in during the way. Just be calm and patient, and you will see how everything unfolds.
How to become an Insurance Broker?
An insurance broker works as a middleman and consultant to help people choose the best insurance needs and to overall give them advice on their insurance choices. A broker must be licensed and must attain relevant educational experience before getting into practice.
|Education Required||High school diploma; bachelor’s degree is preferred|
|Education Field of Study||Business, finance, economics, insurance|
|Key Skills||Customer service, interpersonal communication, initiative, persuasion|
|Licensure/Certification||Licensure is required to sell insurance policies in the state in which the broker works; certification is voluntary|
|Job Growth (2016-2026)||10% (for all insurance sales agents)*|
|Median Salary (2020)||$84,989 (for all insurance sales agents)*|
Becoming an insurance broker isn’t a hard job: get a bachelor’s degree, get experience through internships and working under the supervision of experienced people, obtain a license, work for a brokerage firm and get a certificate!
Within a couple of years you will be a certified insurance broker. The steps may seem long and complicated, but they’re all part of the process. Once you’re in the zone, it doesn’t seem tough anymore.
How to become an Insurance Broker?
An insurance broker isn’t a hard job: get a bachelor’s degree, gain experience through internships and work under the supervision of experienced people, obtain a license, work for a brokerage firm and get a certificate!
Within a couple of years, you will be a certified insurance broker. The steps may seem long and complicated, but they’re all part of the process. Once you’re in the zone, it doesn’t look harsh anymore.
How to start an Insurance Brokerage?
Starting an individual insurance company is different from starting an insurance brokerage. Here’s how you can start one yourself:
- Find insurance carriers to represent at your new brokerage firm. Make a list and choose the best insurance companies that align with you. Review general agent contracts, and read the policies, see how agents work.
- Setting up an office is also essential; having a proper space designated for work also helps clients view you as genuine and professional. Choosing an ideal location is necessary; it shouldn’t be too hard to reach and right in your target market. After that is done, you should focus on the interior and make sure the office looks clean and well utilized.
- As an insurance broker, you will have a lot of work on your plate, and most times than ever, you will require another pair of hands and another mind at work. For this, you should hire an assistant who understands the job and is also productive and efficient. You will realize with time how important it is to have a trustworthy person by your side to help you with scheduling, management, clients, etc.
- The next step will be advertising. Choosing the best medium for promoting your business is very important; make sure it doesn’t require a lot of money. You should be finding ways of cutting down your cost during the initial months.
How much does it cost to open an Insurance Agency?
With every step of opening up a brokerage or insurance agency, you will need to spend money. This is what the cost will look like:
- Licensing: $100 to $400
- Taxes: Fee for tax collection is usually $50
- Staffing: $12.17 to $27.31 per hour
- Setting up the office: $5000 to $100,000
These are average rates of the cost it will take in the insurance agency; of course, if you’re looking to create a high-end firm with a top-notch interior and an excellent location, you should be prepared to pay more.
Starting an insurance company from scratch is challenging, but is possible, it requires lots of consistency along with proper financing to get it going. Entrepreneurs are risk-takers, and the most significant risk is often money. The inflow is often too slow or inconsistent, but as an entrepreneur, you should be sure to stand your ground and not let anything get in the way of your business. Bad days will come, and the first 2-3 years are the hardest, but with enough passion and diligence, the rest of the years are fruitful and secure. Just be patient and calm and enjoy the challenges that you face every step of the way.