Launching An Insurance Carrier: Where To Start

Starting an insurance company is no small feat. It requires careful planning and preparation, as well as a solid understanding of the industry. Here are the key steps to get started:

1. Become a licensed insurance agent: Understand your state's licensing process and requirements, decide on the type of insurance you want to sell, take a pre-licensing class, schedule your exam, and apply for your license.

2. Write a business plan: Outline your business goals, how you plan to achieve them, your target market, financial projections, and unique value proposition.

3. Choose a business structure: Decide between a sole proprietorship, partnership, limited liability company (LLC), limited liability partnership (LLP), S corporation, or C corporation. Each structure has different tax implications and levels of personal liability.

4. Register and license your business: Choose a business name, register it with your state, obtain a tax identification number (EIN), and apply for any necessary business licenses and permits.

5. Get business insurance: Protect your business with professional liability insurance, general liability insurance, and other relevant policies.

6. Form relationships with insurance companies: Apply to work with insurance companies whose products you want to sell, or join professional associations to access a wider range of providers.

7. Grow your client base: Network, advertise, and build an online presence to attract customers and expand your business.

Remember, starting an insurance company requires a significant amount of time, effort, and financial investment. By following these steps and staying dedicated, you can turn your dream of owning an insurance carrier into a reality.

Get licensed

To start an insurance carrier, you will need to get licensed. The requirements to become an insurance agent vary by state, but they can often be completed in a few weeks. Here is a step-by-step guide on how to get your license:

Decide what type of insurance agent you want to become:

You will need to decide between two types of insurance agents: captive and independent. A captive agent works with only one company and represents only that company's products. An independent agent works with multiple insurance companies and provides clients with policy quotes from different insurers.

Choose your insurance line of authority:

Before starting the licensing process, decide on the types of insurance policies you want to sell. This will determine the type of license you need to obtain. For example, if you want to sell auto or home insurance, you will need a Property and Casualty license.

Complete a pre-licensing education course:

While this is only mandatory in some states, it is recommended to complete a pre-licensing course to prepare for your licensing exam. The National Insurance Producer Registry (NIPR) has resources for checking state-specific licensing requirements and fees.

Pass the relevant state insurance license exam:

Once you've completed your pre-licensing education, you will need to pass the state insurance exam. Each line will typically have its own unique test, and you may need to show proof of your completed training class before taking the exam.

Complete a fingerprint and background check:

In most states, you will need to submit your fingerprints for a state and federal background check as part of the licensing process. This is typically done in person through state-approved providers and will provide a detailed report to the Department of Insurance in your state.

Submit your insurance license application:

After completing all the prerequisites, submit your insurance license application to your state's Department of Insurance. This is typically done through the National Insurance Producer Registry (NIPR) and is accompanied by a filing fee, which varies depending on the state and the lines of authority you are applying for.

The time it takes to get licensed as an insurance agent can vary depending on your state's requirements and how quickly you complete the necessary steps. It is important to note that you must have a license to discuss insurance products or complete sales, and operating without a license can result in penalties or legal action.

Write a business plan

Writing a business plan is an important step in starting an insurance company. It provides a roadmap for success and demonstrates your commitment to stakeholders such as investors, employees, and insurance carriers. A thoughtful business plan will help you secure financing and startup capital, identify your target market, and choose your business location. Here are the key components of a strong business plan for an insurance company:

Executive Summary

The executive summary provides an introduction to your business plan and gives a brief overview of each subsequent section. Explain the type of insurance agency you are operating and your current status, whether you are a startup, looking to grow an existing agency, or operating multiple locations.

Company Analysis

Detail the type of insurance agency you plan to operate. For example, will you be a direct writer/captive agency that only sells one insurance company's products, or an independent insurance agent that sells policies from multiple companies? Provide background information on your business, including when and why you started, milestones achieved, and your legal structure (e.g. S-Corp, LLC, sole proprietorship).

Industry Analysis

Provide an overview of the insurance industry, including its size, growth or decline, key competitors, insurance carriers, trends, and growth forecast. This demonstrates your knowledge of the market in which you are operating and helps identify market trends that can inform your strategy.

Customer Analysis

Detail the customers you serve or expect to serve, such as individuals, households, or businesses. Break down your target customers in terms of demographics (age, gender, location, income) and psychographics (wants and needs). Understanding your target market will help you tailor your pricing, product options, and marketing promotions accordingly.

Competitive Analysis

Identify your direct and indirect competitors. Direct competitors are other insurance agencies, while indirect competitors are other options customers have for purchasing insurance, such as self-pay, public insurance, or working directly with an insurance carrier. Analyze your direct competitors' strengths and weaknesses, the types of customers they serve, their products, pricing, and areas where you can outperform them.

Marketing Plan

The marketing plan should include the following components:

• Product: Reiterate the type of insurance agency and the specific products/services you will offer, such as property and casualty insurance, life insurance, etc.
• Price: Document your pricing and how it compares to your competitors.
• Place: Describe your business location and how it will impact your success, such as proximity to potential customers.
• Promotions: Outline your promotional strategies to attract customers, such as advertising, partnerships, local events, and online presence.

Operations Plan

Describe the day-to-day processes involved in running your insurance agency, such as serving customers, procuring relationships with insurance carriers, and negotiating with repair shops. Also, outline your long-term goals and milestones, such as customer acquisition targets, sales goals, and plans for expansion.

Management Team

Highlight the key members of your team and their relevant experience and expertise in the insurance industry or small business operations. If your team is lacking, consider assembling an advisory board of mentors with experience in insurance or small business success.

Financial Plan

Include a 5-year financial statement with monthly or quarterly breakdowns for the first year. This should include an income statement (profit and loss), balance sheet, and cash flow statement. Be sure to include key costs such as location build-out, payroll, licensing and registration, technology expenses, and insurance coverage.

Choose a business structure

Choosing a business structure is a critical decision that impacts various aspects of your insurance company, including taxation, financing, compensation, and liability protection. Here are the key considerations for selecting the appropriate business structure:

Sole Proprietorship:

A sole proprietorship is the simplest business structure, where the company is owned and managed by a single individual. This structure is easy to set up and has straightforward federal tax filing through Schedule C. However, sole proprietorships offer no legal protection for personal assets, leaving owners vulnerable to personal liability for business debts and lawsuits. This option may be suitable if you operate in a low-risk industry and are willing to take on the associated risks.

General Partnership:

A general partnership is similar to a sole proprietorship but involves two or more owners who share rights and responsibilities. While it offers ease of setup and tax benefits similar to sole proprietorships, partnerships also lack liability protection. Additionally, banks may be reluctant to provide capital to this type of business structure. However, if you prefer to run the business with a group of people, a general partnership could be an option.

Limited Liability Company (LLC):

An LLC provides a legal shield between you and your business entity, protecting your personal assets in most cases. It allows for an unlimited number of members and offers pass-through taxation, with income taxed as personal income. However, LLCs have higher costs, greater complexity, and a limited lifetime of around 30 to 40 years. They are suitable for small groups of owners who require liability protection.

Limited Partnerships:

Limited partnerships have two classes of partners: limited partners (LPs) and general partners (GPs). LPs provide capital and have ownership without management responsibilities, while GPs have greater control but face unlimited personal liability. This structure is complex to set up and carries a high risk of lawsuits and debt. It is often chosen by lawyers or for projects with a limited timeframe.

C Corporations:

C corporations are separate legal entities that offer the strongest protection against liabilities. They can sell shares, have no limits on investment size or the number of investors, and can offer tax-deductible benefits to employees. However, they are time-consuming and resource-intensive to establish, and profits are subject to double taxation. C corporations are typically better suited to larger businesses.

S Corporations:

S corporations are similar in structure to C corporations but are exempt from double taxation on earnings. They are taxed as pass-through entities and offer protection from personal liability. However, they are limited to a maximum of 100 shareholders, who cannot be foreigners or other corporations. S corporations are a good option for many small businesses.

When choosing a business structure, carefully consider your specific circumstances, such as the level of personal risk you're willing to take on, your financing needs, tax preferences, and the desired level of administrative complexity. Remember that the business structure you select will have significant implications for your insurance company's operations and your personal liability.

Register and license your business

Registering and licensing your insurance business is a crucial step in establishing your company. Here are the key steps to follow:

Register your business name:

Choose a name that is easy to remember, spell, and conveys the benefits of your agency. Check your state's requirements, as some states prohibit or restrict the use of certain words to prevent misleading the public. Register your chosen name with your state government, and pay the associated fee.

Obtain a tax identification number:

Apply for a federal employer identification number (FEIN) from the Internal Revenue Service (IRS). This number is necessary for filing taxes and opening a business bank account.

Register with your state:

Contact your state insurance commissioner's office to register as a "resident business entity" for tax purposes. You will likely need to pay a registration fee and comply with state-specific requirements.

Obtain necessary business licenses and permits:

In addition to your insurance license, you may need a general business permit or license to operate legally. Check with your state and local agencies to identify the specific permits and licenses required for your insurance business.

Comply with insurance-specific licensing:

Your business entity may need a license from your state's insurance department. Check your state's requirements and obtain the necessary insurance-specific licenses.

Understand licensing requirements for each state:

If you plan to operate in multiple states, ensure you obtain the appropriate licenses for each. Licensing requirements vary by state, so it is essential to research and comply with the regulations in each state where you conduct business.

Meet other regulatory requirements:

Stay informed about any additional regulatory obligations associated with running an insurance business. For example, certain states may have specific name approval criteria or require the inclusion of the word "insurance" in your business name.

By diligently completing these steps, you will be well on your way to establishing a compliant and registered insurance business.

Get business insurance

Getting business insurance is an essential step in protecting your business assets and ensuring smooth operations. Here are some detailed steps to help you get started with business insurance:

Identify Your Risks:

Start by evaluating the risks associated with your business. Consider the type of accidents, natural disasters, or legal issues that could impact your operations. For instance, a brick-and-mortar store is more prone to slip-and-fall accidents than a home-based business. Understanding these risks will help you determine the types of insurance coverage you need.

Choose the Right Insurance Types:

There are several types of business insurance available, and the ones you choose will depend on your specific needs. Here are some common options:

• Workers' Compensation Insurance: This is mandatory if you have employees and covers their medical expenses if they get injured or ill on the job.
• General Liability Insurance: This protects your business from claims related to bodily injury, property damage, or personal injury by a third party. It is recommended for all businesses.
• Commercial Property Insurance: This covers losses or damages to your business equipment, office space, and inventory. It is particularly important for businesses with physical locations.
• Professional Liability Insurance: Also known as errors and omissions insurance, this covers claims of negligence, errors, or malpractice for businesses providing professional services.
• Product Liability Insurance: If you sell products, this insurance will protect you from claims related to defects in those products.
• Business Interruption Insurance: This insurance covers lost revenue and additional expenses if your business is forced to temporarily shut down due to covered events.
• Cyber Liability Insurance: This is crucial for businesses that store customer data electronically, as it covers costs associated with data breaches.

Shop Around and Get Quotes:

Once you know the types of insurance you need, it's time to start shopping. You can use an insurance broker, an online insurance marketplace, or contact insurance providers directly to get quotes. It's recommended to get multiple quotes to compare prices and coverage options.

Compare and Choose the Best Option:

When comparing quotes, pay attention to the coverage, limits, deductibles, premium costs, and payment terms. Additionally, check the insurance carrier's reputation and financial stability by referring to ratings like the A.M. Best Rating. Choose a reputable carrier that offers the coverage you need at a price you can afford.

Purchase Your Policies and Keep Them Updated:

After selecting the right insurance policies, make sure you understand the payment process, claims filing, and customer support. Periodically review and update your coverage as your business grows and your needs change. Reevaluate your insurance coverage annually or whenever there are significant changes in your business, such as hiring new employees or expanding your operations.

Frequently asked questions