New Insurance Broker Questions

[insurancepip]

First, I have to assume some are tired of questions from people new to insurance business but at least it means your line of work is still relevant. (:

I plan to open an insurance brokerage in Southern California around Los Angeles. Initially, I will likely sell more Personal Lines than Commercial Lines due to my comfort level in the two. I had a location picked out in La Habra but the person I was starting this with has flaked on me and that was his location. I will likely look in a similar area if not farther west of that area. I am looking this weekend when I have time for a new location.

Previously, I worked for several years in Personal Lines Claims. I have some insurance knowledge but not a lot and not as broad as I need. I have considered working for a brokerage before doing this on my own and that may still happen.

Several of my questions, I have had answered by others. I just need someone to confirm a few things or answer something I haven't had answered elsewhere. Some of the answers may seem pretty clear to you but I am obsessing a little and it would put me at ease to get feedback.

Question 1) I have read that some states require additional forms to be submitted to the DOI if a person is operating an insurance brokerage as a sole proprietorship, do I need this in California? I was told by a retired agent in this area that this was acceptable as long as I have the license, am bonded, and then any requirements that the insurer has of me (E&O, place of business, etc.), so is it acceptable that this is a Sole Prop. or do I need a LLC or other organization and have that filed with the DOI?

From what I can see, I am fine with the Resident License, the 10K Bond, a location and E&O Insurance to run this as a Sole Prop. with my given name. I technically filed with the DOI to get my license under my name and I cannot find a form on the site to file anything different unless I want a DBA.

Question 2) If I am using my given name, what are the rules to this, do I simply have my name followed by anything I want like insurance, or brokerage/broker? This is likely somewhere on the DOI site but I didn't find it which led me to ask question 1. Also, are insurer less willing to deal with me if I am not organized under a LLC or Corp S/etc?

Question 3) I am fairly confident that I can finance this on my own for 3-4 months and then on credit, possibly a line of credit. I am a member of a credit union and believe that I can get this from them in order to ease my concerns. If for some reason, I can't, what are your recommendations for financing? My back-up plan is to ask friends and family but I don't want to impose on anyone if I can do this on my own.

Question 4) I hope to break-even the first year, and from working in a claims department - I know from looking through our different systems, what an agency can make from a single policy, and what a well running agency can sell per week but from some of the smaller independent brokers out there, who are selling P&C - can I expect to pull in a total revenue of 41K plus? Based on my salary of 2K a month and what I foresee as business expenses, something around 41K or a several grand beyond should allow me to barely break even. I think there's the potential to do a lot better but getting started and staying in business are my only concerns at this point. I'm trying not to be optimistic and to plan for necessity.

Question 5) I have read a lot about wholesalers, MGAs, clusters, sub-appointments and appointments. Does anyone have a list of clear definitions to each of these? I feel like I understand what each of them are and their pros/cons but if anyone knows of a site that defines each or if they can, that'd be helpful.

Questions 6)
Part a) What insurers would you recommend to pursue as a start-up for a direct appointment in Personal Lines Auto? IF any - I understand that many will not entertain the notion without a proven record of sales.
Part b) What other avenues would you take to get policies to sell from the above, wholesalers, MGAs, and clusters?

I have read on here that some agents opposed to organizations like noodleinsurance due to the direct seller so we don't need to rehash some of this - and I would agree that if I can avoid having to use them, I will.

Questions 7) Who would you go to get policies to sell for Health Insurance? I don't see this being very big for me but I'd like to offer it to clients and I have a list of possible places to look, but what are your opinions?

Question 8 ) Beyond the phone book, do you think that fliers, using some lead companies, getting myself out there, is enough? Is there something beyond this that I am ignoring?

Thanks for your time. I'll look for responses on here but if anyone wants to talk to me about this more, through email or phone then you're welcome to get in touch with me by sending me a personal message and I can give you my phone # or personal email. I think sometimes I just need someone to tell me that I'm not doing the opposite of the right thing.

Some of my questions are more California oriented too so if you're not from CA and giving advice, if you could mention that, that way I can take that in to consideration. I assume that many insurers have different ways of doing business in each of the states. So in one State, they might be the greatest thing to happen, but in another, they could be trying to find brokers to push their policies.


Thanks!

[racecarlover]

You are correct we are tired of trying to capsulate the business of insurance for "you new to the business".
There is no way you are going to get what is necessary unless you "learn the business". This takes hard work and dedication to learning.
In my opinion you need to work for an agency or broker to get an overall understanding of how it all works. You seem too concerned with other aspects.
Maybe you can survive on California auto. The point here is that all successful agents work on calling on clients, getting referrals, and providing exceptional service.
I am tired of individuals that think they can just "jump in" to the insurance business and everyone will just start giving them money. This is an intellectual service business.
You have no license, a little start up money, no experience except for claims and figure you will make it. I hope you do but I doubt it.
I do not believe any company will plant with you. You can only hope to place surplus business if any surplus broker will look at your business with you having no experiece.
You are going to have a very hard time of it and winging it just gives additonal bad press to the good agents.

[Forum Reader]

I think that if you do not already know the answers to these elemental questions, and are turning to an online forum for information, you are not ready to open your own brokerage.

[volstrike3]

My advice is to get some experience. Find a job with an agency or direct writer that has a training program. I would not want to be a captive agent for long but Farmers, State Farm, Allstate and Liberty Mutual do have good training programs Work with them 3-5 years and learn everything you can about the insurance business and how to manage an agency. You are not ready to do this now. Save your money, get some experience and industry contacts and make a run at this in the future.

[gregcw]

insurancepip,

volstrike3 had a bit of good advice about getting started with a captive. If you start with Farmers you'll get a lot of good training and be VERY happy to leave. (I speak from experience since I started out life with Farmers). Farmers is also good about throwing a lot of dirt [untrained new agents] against the wall to see how many stick.

If you go with State Farm they will probably keep you if you are any good. That's not a bad deal because they are a good company and you would not have to worry about finding a buyer for your agency. They also pay into a 401K for your retirement. I, personally, don't think I'd want to work with Allstate and know nothing at all about Liberty Mutual. American Family is appointing a lot of agents in Oregon but they don't seem to have many survivors

Having claims experience you should be able to sell higher limits and explain coverages to customers better than most new/struggling agents can. I would not recommend going greatly into debt for this. If you start out with Farmers, they give you a subsidy that you may have to pay part of back. They also have a program that allows you to "Run to Daylight" based on production.

One thing is certain, the industry is constantly changing and getting appointments for a scratch agency will be difficult. I said that I started out life with Farmers. When I left they had just had a hostile take-over by British American Tobacco U.S. (RJ Reynolds) Now I work on both sides of Farmers with Zurich (their parent company for about 6+ years) and Foremost (their wholly owned subsidiary) When I left Farmers, 18 years ago, I used my contract value of about $60,000 to start my agency again. Farmers does allow you to have appointments that do not "compete" with them. Basically this means 'If they don't want it, you can place it somewhere else". That is a very tight rope to walk but it does allow you to have a small safety net for when you both finally agree to disagree. Most of the Farmers agents I know only sell surplus lines and non-standard property coverages.

The long and short of it is, if you are willing to bite the bullet, and can live with a company like Farmers, you can survive. After a quarter of a century in the business I wouldn't want to start over again from scratch.

Good Luck,

[insurancepip]

I would have appreciated some answers. This is capitalism. No one will think ill of you for selling enough rope for a man to hang himself. (:

The main reason I feel I can sell auto and small commercial is that in dealing with agents as a claims adjuster, I realized that the ones I dealt directly with had no idea what they were selling.

I am speaking to an agent/solicitor/broker(whatever) charging a $150 fee to a customer and this person is asking me what is on the policy. An agent will call the underwriter because they don't know if a trailer is covered or how a trailer is covered. Underwriting tells them to call claims. I am on the phone, dealing with this one day, and I am explaining how an endorsement works. It's not even in my job description.

I don't want to think about how many times an insured is baffled by the concept of a deductible or have some other issue with their agent.

Recently, I had an agent who sold comprehensive and collision on a salvaged vehicle. First, per our company, you're not suppose to do that. I call the agent because I am thinking of becoming one and I want to understand how he thinks through this issue. The speak with the manager of the office, and he tells me that he doesn't know what rate they were quoted (they got charged for a regular title) and insinuated that maybe the customers had lied to whomever wrote the policy. I asked him to check in to see who wrote the policy. I go back to the customers who happened to be in the office, and they show me the card of the person who sold them their policy and it was the manager I had spoken with - who basically lied to me.

The worst part is the agencies I am dealing with are making good money, selling in excess of 100 policies a week with $150 broker fee and 18% commission on the premium.

I have dozens and dozens of these stories. I know that I will be right away better at selling at least ONE type of policy with no study necessary.

All of you may be hot-shot agents, but I don't want to be a hot-shot agent. I want to be better than ones I and some poor customer was having to deal directly with.

You're right, maybe I'll just sell auto insurance for a few years and "scrape" by in that respect. My goal and this is more than a goal - it's basically the only way to stay profitable is to tell one policy everyday Monday through Saturday. I don't have many expenses personally and I have ran the numbers for myself. It may not be a very fun year but I will use the time to learn more about the business.

My plan is as soon as I am stable, I will get some further education on more complicated policies but I am confident that I can sell Auto, BOP and Home. I won't sell something unless I understand it. I know there are courses, sometimes 2-3 long educational programs and I will enroll in these. You don't need a big company to babysit you. I understand, it's probably easier.

I am not interested in being a captive agent. I understand where you all are coming from in recommending these things but it's not for me.

I have asked these questions face-to-face to agents beforehand and I get different responses every time. Some of my questions, I likely know the answers to but I am a little stressed and any little bit of doubt in my mind and I just want clarification.

I don't want to get personal but I had a friend who was doing this with me and he had a place picked out and a lot of these questions already answered so I hadn't thought of them and then he flakes on me so I am trying to verify a lot of things that I thought weren't my issue. For instance, It wasn't an issue is a Sole Prop. acceptable because it wasn't going to be a Sole Prop! Even if I see no reason in the DOI pages for a Sole Prop, and I can't see why my name with Insurance Broker after it would be a DBA, maybe it is, but maybe there's another reason this isn't acceptable. Maybe it's acceptable but insurers would rather see a LLC or Corp.

Anyways, I was happy to see when my email prompted that I received some respones, but I was really hoping for answers. One person criticizing, I understand but maybe we make a trade for every criticism, you can answer a question.

[Porter]

Question 1) The DOI does not care if you are sole proprietor. You will just operate your business under the name that is on your insurance license. You will need a $10k bond. Carries will require the E & O. This insurance should be one of the first things you look into. The cost of it mite detour you from the start.

Question 2) Your business name will your full name. Example: John Paul Jones. Insurance companies don't care if you are a corp. or sole prop.

Question 3) I don't know of any reasonable financing for a start up agency.

Questions 4) This questions is where the rubber hits the road. It all depends. What appointments will you manage to get? Are you a good sales person? You have to know how to connect with people and get them to sign on the line that is dotted. Just because you know how to explain a policy does not mean dick. You need to know how to run a business. You need to know exactly what all your expense will be. There are probably a lot of them that you are not aware of.

Question 5) Basically since you have no experience running an agency you will probably not get any appointments. I don't know a lot of clusters or MGA's but check out Networked Insurance Agents in Grass Valley, Ca and Superior Access in Irvine, CA. These companies are basically middlemen. Look them up on the internet and read about what they can offer.

Questions 6)
Part a) I would recommend contacting all of them. If you don't get an appointment from them you can at least ask them where you need to be to get appointed.
Part b) See question 5.

Question 7) Health insurance companies probable won't touch you either so you will need to contact a health MGA like Warner Pacific.

Question 8 ) There are no secrets to marketing insurance you just have to do your research on your target market and find the most cost effective way to get them on the books.

Here are some answers to your questions and now an opinion. Don't throw your money away on a start up agency at this point. Take the advice of others and work for an independent agency first. Work a deal out with one that will let you buy your book back down the road when you have the experience to run your own agency.

Good luck!

[insurancepip]

Thank you.

I think a lot of my questions were stress driven. I finally found the information on the Sole Prop. info on DOI for CA. I got really worked up the other night when I couldn't find it. I had spoken with a retired agent, whom had experience as a VP, months ago when I was first thinking about this and he told me what is on the DOI, but when I couldn't find it anywhere - I started to get concerned that things had changed in the meantime. I didn't want to call him up because it seems rude to go back to someone and be like "well, where is it in the code?" I am sorry if I offended anyone with kind of a tangent in the last post. In dealing with some agents around this area, I know I am more than capable of providing a better service. I really don't expect to blow the competition away either. I just want to do it.

Yeah, and everything else you said seemed to be what I thought and had heard. I already have the bond and the license and am waiting on quotes from E & O. I have some funding but like you said about the unknown expenses, that is what is concerning me when it comes to financing, having enough room to survive the mistakes. I didn't expect anyone to tell me anything different on financing but it doesn't hurt to ask because you miss opportunities assuming everything. It's easy to ask the kind of dumb questions on a forum just to make sure something isn't overlooked.

I am applying to brokerages in the LA area to maybe do what you said about working for a while and then seeing if I can transfer some of my business out in case the E & O is too high for me or I think I can't run at a loss for the length of time it would take me to learn.

I am hesitant to do that though from reading about how some people have found the training at brokerages to be sub par, and then a lot more people really don't like the captive agent system. So I looked at those two options as potentially not my best option.

If I can what I want to do is start an agency, sell the kinds of policies that I am most comfortable while getting further education. I have it written down but I think the American College offers courses.

There is a lot to be said for learning on the job, so I might still go that route plus it would allow me to save up for longer.

Speaking of learning on the job, and I don't know if as agents you deal with this as much or about the same but there are some angry people who show up at claims offices. In fact, we had a bomb threat just this last year. That is something you can't have someone tell you and you can't read in a book. How do you sit down with someone and just flat out tell them this is the way it is, and those kinds of things.

Anyways, I think I would do just as well getting educated from Farmers or a brokerage as I would struggling for a few years while I educate myself through courses and in speaking with people. I don't know, maybe I am getting stubborn. And to the person who was concerned that I would give insurance agents some kind of bad name... Honestly, if I can't sell someone a proper policy, I won't sell it to them.

Whichever happens, I'll probably keep checking this site and others so if anyone is curious in 5-6 months, maybe I'll post what happened.

Also, I don't usually write in this really long winded way, I think it's just from fixating on one thing for too long.

Thank you Porter.

[Lee3632005]

I did not read all of the posts as I don't have time, so my advice in a nutshell:

1. If you can, work for an agency/broker that will train you; it is very valuable knowledge & you will probably be better off in the long run if you do this,
2. If you aren't willing to or can't work for someone else 1st keep in mind the following:
A. Everything is going to be more expensive than you think
B. You need to include salary for you in your business plan
C. Sales will be MUCH slower than you think. You have no base to garner referrals from so you will have to find a source somewhere and that will probably cost you money,
D. You can know the forms inside & out, but if you don't have any clients it doesn't help you at all,
E. Access to markets is critical
F. Advertise or go after business with the carriers/wholesalers that are willing to work with you,
G. It WILL take longer than you think; if you are not 100% committed I recommend you do not do this.

Good luck. Alan.

[racecarlover]

Porter you are being stubborn and long winded and are not taking the advice of those who have been there and know. You think you know but you do not know what this business is about. Until you do it for a living, learn it, and are competent only then you can call yourself an agent.
I have been doing it for 30 years. I handle heavy tough commercial property and casualty business ie, construction, energy, oil and gas, marine (onshore and offshore). I do not know it all and never will. This is a profession just like an attorney, dentist, doctor etc. This is a practice where every day you learn something new. You build the experience and knowledge daily. You cannot competently advise a client without knowledge and you do not yet have the knowledge. If you are truly committed to being a good agent and student of the business these are the things you need to do. And if you do them you will be successful.
I am here in New Orleans. There are several "big name agencies" that had all the prestige and name recognition. Now post Katrina each of these agencies are dealing with 40 to 60 E&O claims each with $10,000 to $25,000 deductibles per claim. You do the math. Our agency had 6 and 4 of those were dismissed. We do as much or more business then these "name" agencies.
You are getting excellent advice. Take some of it and use it wisely.

[Big Dog]

Insurancepip

First, as others have recommended, start off by working at an insurance agency. I'd strongly recommend that you consider an independent agency over a captive (i.e. State Farm, Farmers, Allstate...oh wait-they don't write homeowners in CA anymore). There are many good regional agencies that will provide you the learning environment you need.

Next, if they have a "non-compete" agreement, understand that non-competes are worthless in CA. Don't sign it...period. Next, find out what sort of training/mentoring program they have. You may find that you would be better off working for an independent agency, and having all of the benefits (staff, technology, learning, etc.) vs trying to do it on your own.

[LadyBroker]

Non competes are valid in California. They are often misunderstood, though. What is enforceable is the 'non solicitation' portion of the agreement, and your employer will be quite vigourous in enforcing this aspect of your agreement. Good luck.

[houstonagent]

come over to Texas, theres going to be a BIG rush in a couple of months in the non standard market for auto insurance.New program in effect with TDT and TDI.