Ten Steps to an

Independent Insurance Agency

from the Independent Insurance Agents of Arkansas

1

Ten Steps to an Independent Insurance Agency

Starting an independent insurance agency can seem like a daunting task. Where do I begin? How do I get
licensed, find insurance companies to represent, open an office, and hire people? If you are reading this, it
means you are considering embarking on this journey. While there are many challenges that will face you
there are also many rewards that will await you, such as the ability to call your own shots, a healthy return
on investment in the form of owners equity and the satisfaction of being in a business that protects people
and their valuables. As the philosopher Confucius said: A journey of 1,000 miles begins with a single
step. We hope that you will use the following ten steps to assist you in your journey to opening your own
Independent Insurance Agency.
Following is a short list of critical success factors necessary to make it:
Capital While an independent agency is not capital intensive relative to other industries, you will need
start-up capital for things such as office space, furniture, computer equipment, Errors and Omissions
Insurance and marketing. Also realize that it takes some time to build your business so you will need
money for living expenses as you grow your agency.
Access to insurance companies You can get your license, but you cant sell insurance without access to
insurance companies. For property and casualty insurance, most companies are looking for a long-term
relationship and a commitment to a minimum amount of production, especially the first year that they
appoint you as their agent. Getting an appointment also requires a track record of successful marketing and
selling, a marketing territory geographically desirable to the company, and a solid proposed business model.
Good sales and administrative skills Some people have great selling skills and can make great
insurance producers. Other people are great at administration and service. Starting an agency from
scratch will require both sets of skills until you get large enough to hire others.
Thorough technical expertise Customers are placing their risk management needs in your hands,
therefore you need to understand the products you are selling. Depending on the type of insurance you
intend to offer, there are scores of different policy forms and coverage implications. Your pre-licensing
course only gives you a rudimentary knowledge of insurance coverages. You will need to actively seek out
Continuing Education classes to help you expand your knowledge.
If you are ready to take the next step in your journey follow the steps outlined in this guide. You will be
provided with important resources to help you along the way. Good luck!
1. THE GROUNDWORK How to Get Started
Laying the Groundwork
Establish a realistic timeline. Starting an agency will take time. How long depends on your situation and
how much time you have to work on it. It almost always takes more time than you think it will. Expect at
least six months to arrange financing and two weeks to obtain E&O Insurance.
Obtain qualified legal advice. This is necessary if youre in a current relationship that may involve a noncompete agreement or other contractual issues.
Find out what is required to open a business in Arkansas.

2. THE BUSINESS PLAN Five Things Every Business Plan Should Address
Create the Business Plan
We will not bore you with the not planning is planning to fail lecture, but just about every industry
relationship you need will require a formal business plan. The business plan consists of a narrative,
resumes and several financial worksheets. The five things every business plan should address are:
A. People At its core, the fundamental value of an agency is in the capability of
its people to execute its objectives. Therefore, your business plan should include
information about the people who are responsible to execute it. At a minimum,
include resumes of each of the key players that describe the professional and
personal background relevant to the agency business as well as the knowledge,
skills and abilities possessed by each. For start-ups, a lack of demonstrated
track record may inhibit your ability to attract prospective employees, customers
and carriers. To mitigate this uncertainty, include an explanation of who you know
and how you may be known in the community and/or industry.
B. The Opportunity A key to agency success and of interest to all current and
potential stakeholders is how the agency plans to acquire customers, including
including with what products and services and with what advantages over
competitors. This section should demonstrate that you know who your
customer is, what your products and services are and how you will position your
products and services to be selected over those of your competitors.
C. The Business Environment Your business plan should demonstrate that
you have a keen awareness of the external business environment in which
you operate, that you understand its impact on your business prospects
and how you will navigate and exploit it. The discussion should encompass
regulation, the economy, labor supply, customer markets, suppliers,
competitors and in what way the status of these factors is relevant to the
operation of your agency.
D. The Risks Many business plans, especially those that will be used outside
the agency to attract stakeholders, often make the mistake of painting only
a rosy picture; however, risk is inevitable. The best business plan readily identifies
and confronts the risks to be faced. Potential stakeholders, especially prospective
carriers, will develop confidence in those agencies that pose the risks and provide
strategies to resolve them.
E. The Numbers You need to have realistic expectations of where revenues will
come from and when and how cash will be used; furthermore, insurance carriers
will be interested in growth projections. At a minimum, you should have a start-up
budget, a cash flow forecast and a production forecast.

3. LEGAL CRITERIA AND E&O Licensing, Registration, Tax ID, etc.

Meet Legal Criteria
A. Obtain Licenses
For sole proprietorships, Property and Casualty licenses are issued to the individual. For partnerships and
corporations, the entity must have a separate license filed with the ARDOI.
B. Choose an Entity
There are three broad categories to investigate when determining your business organization: sole
proprietorships, partnerships and corporations. While sole proprietorships are the least expensive and
easiest to create, they carry a risk of personal liability for the owners. Partnerships and corporations can
afford further protection for the owners, but require more paperwork and expense to create.
C. Sole Proprietorships and Partnerships - Assumed Name Act
If you decide that your company will be a sole proprietorship or partnership, and you wish to use a name
other than your own name, you must perform a name search at the County Register of Deeds to see if the
name of your company is already being used.
D. Obtain IRS ID
The IRS requires a Taxpayer Identification Number for all entities. This number is used in the administration
of tax laws. If your agency is organized ad a sole proprietorship, your social security number is your tax
identification number. If your agency is organized as a partnership or corporation, you are given a Federal
Employer Identification Number (FEIN).
E. Join IIAA
The association is here to help our members succeed. IIAA offers support through education, insurance
market placement, technical and HR advice, governmental advocacy and agency management support.
F. Apply for E&O
Prior to being appointed with an insurance company, you should get Agents Errors and Omissions
coverage. When completing an E&O application for the new independent agency, include information on
any business you are bringing with you or use estimations and predictions of the business you plan to write
over the next 12 months. The E&O carriers will also require a business plan and resume. Since this is a
new agency, they will not have the history on the books to underwrite, so they will underwrite you, as the
owner, and your goals for the agency. One of the benefits of IIAA membership is that you have access to
E&O coverage at a reduced cost.

4. ACCESS TO INSURANCE MARKETS Secure direct appointments and Indirect Markets

Secure Market Commitments
Direct appointments with a variety of established carriers that have broad, competitive insurance products to
offer is the ideal situation and very hard to come by unless you have at least a three-year track record and
a sizable book of business that you will bring to the table right off the bat. For most start-ups, market
commitments will have to come from a combination of a few possible direct appointments and/or a variety of
indirect markets such as wholesalers, managing general agencies and market aggregators.
A. Direct Appointments
IIAAs company appointment guide lists many of the insurance companies that operate through the
independent agency system; however, most will only appoint agents who have some sort of established
track record and/or are located in selected marketing territories. As an IIAA member, you also are a
member of the Independent Insurance Agents & Brokers of American, giving you access to Big I Markets
and Big I Eagle Agency, both of which provide you with easy access to top-rated carriers with low/no volume
commitments and NO FEES. You also have access to the Big I Flood Program through Selective Insurance
Company.
B. MGAs/Wholesalers
Many Managing General Agents and wholesalers are receptive to working with new agents. Many will have
little or no volume commitments and are compensated per transaction through policy fees that are passed
on to the customer. The Arkansas Surplus Lines Association has information and links to its member
MGAs and wholesalers.
C. Market Aggregators
Market aggregators provide assistance to new agents in setting up their first agency office, access to
otherwise unattainable markets and niche programs, the opportunity to obtain direct company appointments
and a chance to share in the networks profitability. In return, these networks usually ask agents to pay a
percentage of commission, a membership fee, or require them to give up a small stake in the value of the
book of business built up through the aggregator. Be sure to review the contractual relationship with these
entities carefully, especially as they relate to book ownership, commission or revenue sharing and exit
costs.

5. AGENCY MANAGEMENT SYSTEM Framework for the Necessary Business Processes

Choosing an Agency Management System
A fundamental building block for todays successful Independent insurance agency is a good agency
management system that provides a framework for all the necessary business processes. The most
effective agencies have maximized the ability to operate as digitally as possible, minimizing double entry
and handling paper. Agency management software can range in cost from less than $1,000 to $5,000 for a
start up operation with monthly fees of $60 to $600. It is advised that a new agency should not skimp on
agency management software since it will pay in the long run to operate as electronically and efficiently as
possible. With this is in mind you want to make sure the system fits your agency. When you join IIAA you
will also become a member of the Independent Insurance Agents and Brokers of America (IIABA) They
sponsor an organization made up of independent agencies, carriers and technology vendors called the
Agents Council on Technology. The ACT website has numerous resources to help agencies. You will find
vendor comparisons for both hardware and software and checklists to be used in making your decisions.
This will help maximize productivity and profitability. Examples of information provided through ACT are:
6. WORKFLOW PROCEDURES Develop a Written Procedures Manual
Establish Workflow Processes and Loss Control Procedures
It is estimated that one in five agents will be involved in an E&O claim during their career. One of the best
ways to avoid this exposure is to create and develop a written procedures manual. The procedures should
be adhered to by all employees. You must create THE AGENCY WAY. This document should be concise
and adaptable to meet the market and client demands, but should also establish some structures guidelines
to enforce the way you want your business handled.
In addition to procedures for Errors & Omissions Loss Control, agencies will be wise to have written
workflows of the agencies processes. These will enable you to assess where you are as well as where you
are going in the automated world. Best Practices will provide self assessment tools to give you a base from
where to start as well as instruction on how to get to the next step.
The information provided by ACT and the Best Practices will give an agency the tools to develop their own
manuals to protect and lead the agency into developing procedures to protect from unnecessary errors and
omissions claims. From the links below, you will find these websites provide numerous articles and
checklists.
7. ADDITIONAL TRAINING & CONTINUING EDUCATION Technical and Management
Obtain Additional Training Technical, Management, and Industry
Depending on your level of industry experience, or your level of expertise in the various lines of business
you intend to offer, IIAA and the Independent Insurance Agents and Brokers of America offer a broad array
of training resources and career paths to fit your needs. We will be glad to answer any questions you might
have regarding your prelicensing or continuing education needs. Classes are provided both in house and in
classroom and in addition we offer online CE.
Once you become licensed you will be required to complete 24 hours of Continuing Education every two
years. Your two-year biennium is based on your birth month and year. IIAA offers our members an
opportunity not only to complete these required hours, but also to obtain professional designations in the
process.

8. RECRUITING THE RIGHT STAFF

Whether you need staff immediately or later you will find the agency in need of additional help. Recruiting
the right talent for the right position is not easy; however, we offer several tools to help in this effort.
Whether job descriptions of professional assistance in your recruiting effort the following sites should assist
you.
9. PROFESSIONAL RELATIONSHIPS You may be an Independent Agent, but you are not alone!
Join IIAA
Membership in the Independent Insurance Agents of Arkansas offers the new agent not only access to
discounted Errors and Omissions coverage and a variety of other member benefits and services, but it also
makes you a part of a family of other Independent Agents throughout the state.
10. Networking Developing the Relationships you Need to be Successful
Get involved in your local community
Agents who have successfully started a new business will tell you that it is important to become involved in
your local community. This can be done in a variety of ways: through membership in your local Chamber of
Commerce, by joining a civic organization such as Rotary or Jaycees or by becoming active in your place of
worship. Insurance is a relationship business, and building relationships in your local community can be a
factor in the success of your new agency.
Use Social Media to enhance your agencys visibility to others
You have probably thought about developing a website for your agency. While this is important, there are
also other social media outlets, such as Facebook and LinkedIn, which you may want to consider
incorporating into your overall strategy to use social media as a means of enhancing your agencys
visibility.
One advantage of your membership in IIAA and Trusted Choice is that you may take advantage of the
Consumer Agent Portal through the Independent Insurance Agents and Brokers of America. This is a
website where folks who are looking for a local agent are directed to Independent Agencies in their local
area, which can drive additional business to YOU.
While all these are important tools, it is even more important that you use them in the most efficient and
beneficial way possible. Listed below are some links to articles and social media experts that can help you
use the new social media in the most productive way