5 Reasons Owning an Insurance Agency is a Smart Choice
I am tackling questions I hear most when meeting with prospective independent agency owners. You could be looking for a great business to own and are just now considering becoming an agency owner, OR as a current owner, you may need a reminder of what is so great about what we do. So, what draws entrepreneurs to the insurance industry?
Low Start-Up Costs
Studying for and obtaining an insurance license does not require much money and can be done in just a few months. Also, only the basic office costs are needed to get up and running and can be kept under $1K per month fairly easily.
Be careful though. If you choose the franchise route in starting an agency, you could pay a hefty upfront fee. In some cases, this could be greater than $40K upfront.
One of the more interesting aspects of starting an insurance agency lies in the amazing number of ways the business can be structured and grown. For example, many agency owners decide to build from ‘scratch’ while having secondary sources of income. In this scenario, it takes a few years to build cash-flow, but you make the decisions from the get-go about what types of customers you want to focus on in your agency and build from customer number one.
Another option for more rapid growth may be the acquisition of a current book of business. In this scenario, an owner purchases another book of customers for a set price and then instantly benefits from the established cash-flow. The catch here is the need for capital but there are many funding options available even if you don’t have the money ‘in the bank’. The key, with whatever direction you choose, is you have the flexibility to decide how you want to structure and grow your business. YOU have the power to tailor-make the business to suit your personal and professional needs.
When you build a book of customers, you build a lump sum of annual premium dollars that generates annual revenue. You will earn a small commission each year on the whole. In most cases, the average revenue will equal 12.5% of the whole. So if you can build a $1MM book of premium, it will earn $125K annually. Just think about how those numbers look at $2MM, $3MM, or even $5MM in premium!
What’s the trick? You will need to create sources for continuous new business, quote many opportunities, and retain your customer base. Then you must be willing to stick it out for the long haul and not anticipate an overnight success. It can take anywhere from 18 months to 3 or 4 years to build your first $1MM book, but once you have reached this point, most owners choose to make it a lifetime career.
A 'Must Have' Product
The insurance product itself also attracts many owners because it truly does sell itself. By law, everyone should carry auto insurance. And homeowner's insurance is required if you have a mortgage on your home and is certainly advisable even if you don't. So, this makes asking for business much easier than it would be if you were offering a different product set.
In most cases, you will own a substantial book of business that can be sold for a multiple of the annual premium when you choose to retire. If you own a $2MM book of business and sell on the open market for 2x revenue, you will get a lump sum of $500K for your business if and when you decide to sell. That's a pretty good-sized egg! These are just a few of the main reasons people consider becoming an agency owner. There are certainly others, and I would love hearing feedback about what attracted you to consider this admirable profession.