Should YOU Start Your Own Agency?
Insurance Experience is Required
Build on What You Know
Being Successful Requires Being or Becoming a Businessperson
Ambition and Drive Matter
Staying Alive Long Enough to Thrive
In recessions, all costs go down. Office space and real estate become cheaper as vacancies rise due to business contraction and failure. Equipment is available often for pennies on the dollar. Virtually everything a new business needs to get started is cheaper, including talent.
While recessions result in higher unemployment, savvy business creators use the opportunities to hire people, often with creative or lower compensation. But even without lower labor rates, it is much easier to hire people for a start-up (which potential employees often view as a career risk) when unemployment is high. Sometimes the founder herself is unemployed, which is the ultimate availability and opportunity.
It’s also easier for agents to get appointed during a recession because carriers need revenue as they experience top-line declines. Plus, carriers tend to moderate price increases (despite the fundamentals in their books) to retain business and market share. As a result, businesses like insurance agencies, which have distribution limited by the maker (in this case, the carrier), also find it’s easier to get access to great products to sell.
The COVID-19 crisis represents other unique opportunities for the agency entrepreneur:
It’s become easier over the last decade for start-up agencies to obtain the right to represent top quality insurance companies. That ease is enabled by agency alliances, which help high quality agents start their businesses with a solid carrier set. But in an economic environment in which many companies will experience 10 to 20 percent top line revenue decreases, they will be more willing to appoint new agencies with solid new business capability.With a 10 percent or greater contraction in the economy during 2020, along with massive unemployment and widespread uncertainty, clearly everyone will be trying to reduce expenses. This could literally put every insurance policy in the country up for grabs. This means that existing insurance agencies have to focus time and attention on playing defense. In addition, experience shows that many agencies will not make the necessary efforts at retention, which adds to this unique, perhaps once-in-a-lifetime opportunity for new agencies to grow revenue rapidly.
Agencies have moved increasingly to digital tools to increase speed and efficiency while lowering expenses. New agents can create their business from the ground up with this technology, giving them an advantage in the marketplace against incumbents.
One of the ways aggressive agents are building books now is through the use of Zoom and other remote technologies for prospecting, selling and building relationships. This technology, which suddenly was widely adopted by businesses and consumers alike, dramatically expands the market for a new agency. It is easy today to sell and service insurance anywhere in the country. The new entrepreneur can and will approach technology creatively to increase opportunity while many older agencies play catch up.
While recessions always grow the talent pool, this one is unique because the same technology that is now widely adopted for prospecting and selling (Zoom, etc.) can be used to recruit and manage employees located anywhere. This is a huge opportunity for new agencies, particularly those located in remote areas with a small employment base. Other technologies like Slack and Microsoft Teams allow agencies built for distributed employment to create and reinforce culture and team work as if they were all in the same office.
The new entrepreneur can and will approach technology creatively to increase opportunity while many older agencies play catch up.
In addition, COVID-19 is creating a crisis of confidence in the agency system among young employees who believe they work for agencies who can’t or won’t keep up with the times and provide appropriate mentoring and training. In a recent survey of 400 independent agents conducted for Nationwide Insurance, 62 percent of agents aged 18 to 39 said the virus has them questioning whether to exit the industry. This is a huge opportunity for talent recruitment by entrepreneurial start-up agencies.
The industry entered 2020 with a growing hard market in commercial property and continuing hardening in commercial and personal auto. The premium rebates and other carrier actions have masked the impact to customers of those market conditions. Plus, COVID-19 itself is creating a lack of availability and price increases for some market segments and lines of business.
These price and availability issues are just now being recognized at a time when businesses try to figure out how to either stay in business or avoid losses. Hard markets are always a great opportunity for new agencies; this one is unique in magnifying the other issues we’re discussing, making its impact that much greater.
Finally, a terrific way to control servicing costs is to use carrier service centers at a cost of about 11 percent of revenue, compared to agency employment expense which typically runs closer to 25 percent. Many existing agencies have resisted these tools, so new agencies with enlightened thinking can turn this into a cost advantage, allowing them to deploy saved dollars into sales compensation or greater marketing investments, both of which allow faster growth.
Some of the advantages I’ve discussed are typically available during any recession. Some are unique to the current environment. It’s the combination that creates such amazing, and unique, leverage for a start-up agency. Rahm Emmanuel, the former Mayor of Chicago, said, “Never let a crisis go to waste.” That may be true in politics but it is undoubtedly true in business.
Having helped hundreds of entrepreneurs start their own agencies, in good times and bad, and having started and operated several successful agencies myself, I recognized that the number one thing that stops talented people from pursuing their dreams of business ownership is not knowing “how.” It is the biggest cause of procrastination and killer of dreams that I know.
That’s why I wrote The UnCaptive Agent. In the book I describe in detail “how” to start a successful agency, including all the details that must be attended to. I also ask the questions that every entrepreneur needs to answer on their way to building a successful agency.
While the current economic environment is creating many challenges, I see enormous opportunity, too. My book is intended to help those with the desire and mindset to improve their lives by creating their own future, avoid common pitfalls that will slow them down, and show them “how” to take advantage of the many opportunities available to them.
The next several years are truly the best time in the history of the world to create a new independent insurance agency.
Now, let’s look at whether starting an agency is right for you.
As you embark on the process of building your insurance agency, you have two important hurdles to overcome. The first one is, are you good enough in the insurance profession? How many years of experience do you have as an insurance agent? Our company has helped over 250 entrepreneurs began their insurance business. Not all of them have been successful.
"In general, we find that the risk of failure decreases as the founder approaches five years’ total experience in the insurance industry."
We see that the risk of failure increases dramatically when an insurance agent has less than three years’ experience in the business. Insurance is complex. And even at the relatively simple end of the business, represented by personal insurance (as compared to middle-market commercial lines), it takes time to learn how these contracts work. It takes time to understand how to manage a book of business. It takes time to learn the best processes for handling client claims, and so on. Three years, in our experience, is a minimum level of experience it takes to successfully get started. If you haven't been in the business for at least three years, I would suggest strongly that you put off the launch of your business until you have more experience.
The cycles of the business are very different. For example, the way prospecting and proposals work as a part of the sales process for commercial lines is different. If you don't have that experience, you can certainly build it over time. However, it’s important not to create your agency with the expectation that you're going to sell a lot of commercial insurance until you build that experience.
Do you plan to sell employee benefits, like group health insurance? If you do, are you an expert in that area? With the advent of The Affordable Care Act, the barriers to entry (and certainly the barriers to success) in employee benefits rose tremendously. Many smaller employee benefits agencies sold, merged, or went out of business because the complexity in that part of our industry was more than they could keep up with. It's true that many independent agents include employee benefits in their product lines. Still, you need to think carefully about how you will offer those products and required services on a competitive basis if that is a part of your business plan.
At One Agents Alliance, we recognized early that this was the number-one thing that prevents successful insurance agents from becoming successful insurance agency owners. We have developed a number of programs to coach our member agents on operations and best business practices to help them become successful. Wherever you get the education, training, and experience operating a business, you're going to need it.
Asking yourself how good you are as a businessperson isn't something that should stop you from starting your agency. But it should be something you think carefully about. The insurance commissions you earn as a great salesperson can expand into the profits of a great business.
The other money plan you need to have is how you will pay your personal bills for the first two or three years until you can take enough money out of the business to live on. In the beginning, you may be fortunate to generate income to pay the business bills fairly quickly. But how do you pay the rent or mortgage? The health insurance? How do you fund food, car payments, and all the other expenses of modern life? Are you married, and does your spouse have a job whose income can cover your expenses while you're getting started? This is the way many businesspeople got their start. Or, have you been planning to create your business for a long time, and saving your money against that day? Can you work another part- or full-time job while getting started (one of the founders of one of our largest agencies did just that)?
There are many ways to create a plan for staying alive. But you really need to have that plan well in mind before you start. Finally, do you have the mental toughness—and the guts, frankly—to stick it out long enough to succeed? No one has become successful as a businessperson without having to go through tough times. Often, failure comes just before success would have arrived, but the founder just didn't have the guts to stick it out long enough to make it. Do you?