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September 15, 2020

Independent insurance agencies are growing fast

5 min read

Topic: Blog Growth Agent Insight Insurance Agency Growth Strategies Start an Agency

The last decade has seen more new independent insurance agencies created than any other time in history - some estimate that newly created agencies represent as much as 20% to 25% of all independent insurance agencies now in business. Despite the large numbers of agencies already operating in the insurance industry, the number of startups has continued to increase year by year.

I believe the economic disruptions the country (and the world) are now experiencing, along with a host of other factors, make this the best time in the history of the industry for entrepreneurial captive agents to create their own future by founding a new insurance agency.

Why start a new insurance agency now?

The environment for new agency creation has never been better. Recessions always create a focus on cost containment for businesses and families. This means that for products including health insurance and personal lines, for example, policy shopping behavior increases and makes it easier for new agencies to prospect and sell new clients. The current economic environment is different only by degree, and this economy offers more uncertainty and disruption than it has in several generations. This spells opportunity for the entrepreneur.

In addition to the economic environment, the insurance cycle is in an optimum position for new independent insurance agents to take advantage of. In commercial lines, the market for property and commercial auto continues to harden, while businesses face headwinds for the first time in several years in worker’s compensation premiums. Consumers are at a point of frustration with auto insurance increases on top of years of homeowner’s rate increases, so their shopping behavior is near an all-time high.

Baron Rothschild famously said about investing:

Buy when there is blood in the streets. 


Because that is when opportunities are at their highest. The same principle applies to starting any new business, which is to take advantage of purchaser demand and interest - and they have never been higher.

Carriers are more accessible

All new agencies share the challenge of getting appointments with insurance companies in order to be able to get off the ground, but today carriers have more incentive to appoint new agencies than they ever have. This is due to the general economic and social environment. 

Carriers face serious top-line revenue erosion potential due to the economy, and they face serious cost pressures due to combined ratios, which are too high combined with those falling revenues. Add to that dramatically lessened new business flows due to shutdowns and the need for new revenue, and it’s easy to see why the carriers’ willingness to appoint new agencies is very high.

While carriers want to make appointments, the proliferation of Market Access Providers makes representing a suite of multiple insurance carriers that can rival the largest and most established agencies easier than ever. Agency founders have lots of choices today about how to construct their carrier representation, and the further good news is that they can do it with compensation schemes that rival the largest existing agencies. 

Capital needs are reduced

In years past, the capital costs of starting even a low capital-intensive business like an insurance agency could be a deal killer for many. The need for capital is much reduced now for three reasons. The first is that brick and mortar locations with accompanying furnishings expense is no longer strictly necessary and even if the new agency decides to open a physical location the footprint can be smaller due to the rise in remote working and leasehold prices are falling. The largest expense in any agency is people and service centers offer incredible cost leverage for agents today. Finally, financing expenses have never been lower, and entrepreneurs have access to borrowed funds in greater amounts and at lower costs than ever before. 

Talented workers are seeking new opportunities, while experienced owners are exiting the industry

Most new agencies start with very few employees, but as they grow rapidly, talent acquisition becomes the huge issue it is for everyone in the business. Newer agencies, though, have a couple of key advantages. The first is that many existing businesses are not keeping up with changes in work itself desired, or demanded, by a newer generation of workers. New agencies can start from the beginning with flexible work hours, nontraditional attitudes toward remote work, and (very important to millennial employees) a focus on deep adoption of technology. Add to this the excitement of working for a new enterprise on a mission, which has adopted the latest methodologies for marketing, operations, and community commitment and younger professionals flock to startups. Add to all this the ability, now possible with tools like Zoom™, Slack™, Microsoft Teams™, to manage and motivate remote workers and the creative founder has a better opportunity to attract talent than at any time in history.

Service providers can help lower costs

Blog-Image-Climb-MenBut the agency of the future, which can be founded today, will have fewer people working for it and thus a lower cost structure. This is true because there is now a well-developed ecosystem of service providers who can provide client service, accounting, marketing and other services to the start-up agency at lower cost than employees. And, importantly for any new or growing business, these service firms convert fixed overhead costs to variable expenses reducing the capital needs of the startup and allowing profits to flow faster. 

The talent pool is overflowing

One other opportunity for talent attraction is the continuing pace of agency acquisitions and consolidations. As larger agencies are acquired, many of their employees find themselves either surplus or working in a culture that is foreign and unattractive. With no real let up in agency consolidation in sight, despite the current economic disruptions, there is an unprecedented pool of experienced and talented team members available (as well as more prospective clients who don’t want to continue their relationships with the new firm). 

Another macro trend, which I expect to accelerate due to the challenges created by the coronavirus, is the exit of experienced people from the industry. Studies done in 2018 and 2019 (before COVID) showed that somewhere between 50% and 70% of the employees of the independent agency system would be age-eligible for retirement in the next few years. As these service and sales employees leave the industry their employers face a loss of relationship with clients. This danger for incumbents is an increasing opportunity for startups. 

Geography no longer matters

The sudden development of almost universal adoption of video communication technologies like Zoom™ means that creative entrepreneurs are no longer tethered to their local communities for business development. Smart agents can develop clients anywhere in the country more easily than ever before with targeted marketing and zero travel expenses. This is putting niche-based new business development on steroids and while many incumbent agencies appear to be slow to realize this potential the new start-up can use it as a founding advantage. 

Most entrepreneurs, who have never started a business before, have understandable trepidation about whether they can pull it off or not. The question in their minds is “how” to do it. The answer is “who” can help them - OAA is a trusted choice for many captive agents who have taken the leap to independence and success. We have many articles, books, and coaching on “how”. 

There are certainly other reasons why now is the best time in history to take the entrepreneurial plunge, but I hope I’ve captured your interest with these. In future columns, I will explore these topics in more detail along with ways that agencies focused on growth are finding success.

Download the free "How to Start an Independent Insurance Agency" guide from OAA.

Tony Caldwell is a modern “renaissance man,” who is not only immensely successful in the field of insurance, but is also a writer, children’s advocate, mentor and even a licensed pilot.

Always keen on helping others make their dreams come true, Tony and his team have helped independent agents grow into more than 250 independent agencies. This has made OAA the number one ranked Strategic Master Agency of SIAA for the last 5 years, and one of Oklahoma's 25 Best Companies to Work for.

Tony loves to share his knowledge, insight and wisdom through his bestselling books as well as in free mediums including podcasts and blogs.

Tony and his family are members of Crossings Community Church, and he is very active in community initiatives: he’s chairman of It’s My Community Initiative, Inc., a nonprofit working with disadvantaged people in Oklahoma City; and chairman of the Oklahoma Board of Juvenile Affairs., and he has served through many other organizations including the Salvation Army, Last Frontier Council of the Boy Scouts of America, and the Rotary Club.

In his spare time, Tony enjoys time with his family. He’s also an active outdoorsman and instrument-rated commercial pilot.