I'm Considering Opening an Independent Insurance Agency

[d's insurance store]

The key to re-capturing your clients when transitioning from a captive agency to an independent agency is proper planning. You must have an exit and transition plan, this includes before taking steps to do things before a captive agency contract comes to a termination. You also need to understand the both the non-complete agreement as well as the applicable state laws that deal with non-complete agreements. Without proper planning, you may only re-capture 5%, but with some good planning, you should be able to re-capture 50%, especially the accounts you want. In most captive agencies, there will be some accounts that you should not consider bringing with you to you new Independent Agency. This includes very small accounts, accounts with poor claims history, and difficult clients. Keep in mind when starting a new agency, you have many more years experience, you should want a higher quality clientele as well as clients that are going to keep you out of trouble. Lastly, visit my site linked below, I have a section “Starting an Insurance Agency” which focuses on captive agencies and producers who want to start their own independent agency.

I'm going to strongly, but politely disagree with your assumptions...I could find absolutely NO evidence that any captive agency owner has been able to recapture more than a minute number of clients after leaving the captive for independent market, at least in personal lines. Believe me, I asked agents who did what I did from around the country and with the exception of ethnic market niches, where english language can be a barrier, no one that I could find was able to make any significant dent in their prior client base.

One impediment is that the captive company will fight tooth and nail with assigned agents (I'm assuming the departing agent didn't sell to antoher captive) to retain the accounts. Secondly, is just the bonding factor...many clients of captive companies just like the logo on the billing envelope, in spite of what they tell their agent at a time of anger.

50%??!!!, No Way.

[lonestar]

d's insurance store,
I have been reading your posts for sometime, and I agree with you 99% of the time. However, I have personally witnessed what "agency equity" is talking about, and perhaps you can look at this in another way.

"The key to re-capturing your clients when transitioning from a captive agency to an independent agency is proper planning. You must have an exit and transition plan, this includes taking steps to do things before a captive agency contract comes to a termination. You also need to understand the both the non-complete agreement as well as the applicable state laws that deal with non-complete agreements."

The above statement from "agency equity" is technically true, but of course it hinges on being able to move the captive clients while the captive agent is still the agent of record, prior to the termination date of the captive contract. I was able to witness a captive moving almost 50% prior to going IA. And, this was done very recently in today's business environment. So, while it technically can be done, it is not easy. I also realize that most agents will not be able to do this for a variety of reasons. Just wanted to share my own personal experience in watching a captive agency transition to IA.

Now, moving clients from a captive agency to the IA side AFTER the captive agency contract termination date is a completely different animal. As others have said, the new agents that got the policies will fight tooth and nail to keep the policies. And, since at that point you would not longer be "their agent", it will be harder to move the clients. Unless there are some significant rate differences, I would guess that 5-10% is a realistic number after captive agent contract termination date. And, I did not even go into the legal repercussions of violating the standard 1 year non-compete agreement.

[sacman]

The captive agents that I talk to have had very little problem recapturing their old book of business when switching to IA.
Most of them were Farmers agents and they like to transfer policies to newer agents that don't always know what they are doing, so maybe that makes a bit of a difference. I know of several right now whose non-compete just expired and they are taking business back hand over fist. I can't think of a single captive agent that has regretted going IA.

This is my stats, no "smoke blowing", just the facts, good and bad.

I was told by my attorney that the non-compete was not enforceable and if I chose to I could directly solicit my ex-agency. I decided not to poke the tiger in the eye, however, I DID accept business that approached me, I never solicited.
The business FLOCKED back to me faster than I imagined. I wrote just over $100,000 of GWP in the first month.
Of course, I WAS sued and the court found that the non-compete was enforceable. However, for every dollar of GWP I took back it cost be about 3.5% in penalty, including legal fees, and I was paid, on average, 16% in new business commission. So I still netted 12.5%, which is still more than the 10% auto commission that FIG pays. In total it cost me about 25% of my conract value, but I made many TIMES that back in the first year and 99% of those clients are still with me.
The lawsuit was a pain in the tail and very stressful. Even though I came out just fine, in fact way ahead, I would caution anybody whose is considering getting into a gray area with their non-compete to be VERY careful.

It will be 4 years next month that I went IA. In that time there has only been one month where I did not write at least one of my former clients into my IA agency. I still solicit my ex agency and I still get responses to them. When I quote them, I close them 100% of the time. ONE HUNDRED PERCENT close ratio on my old book. I have over 85% of my old book back. As AgentEquity stated, there are several customers that I do NOT want back and do not solicit them.

In 2007, my 1st year (8 months acually) after going IA my income was about 70% of 2006( my last year with FIG).
2008, my second year IA, my incomce was about 90% of 2006.
2009, 3rd year as an IA, income was 120% of 2006.
2010, my income was 155% of my 2006 income.

My expenses have stayed fairly stable, however, I did move into a larger office which increased my rent by about 60%.

I don't have the exact figures, but i would estimate that about 40% of my book switched back to me in the first year and that the remaining 45% since then. Of the remaining 15%, I only solicit just a small portion. Maybe 15-20 per month. At this point nearly 50% of my new business comes from referals.

When making the change to IA, you WILL work your rear end off. I put in longer hours than I had in a long time.
However, it is rejuvanating and exciting. Your are offering people better policies for less money and they are walking out of your office smiling and thanking you.

Best of luck

[d's insurance store]

Well, perhaps I should have ended my posting with the term 'your mileage may vary'.

And, indeed, I'm talking from the perspective of NOT doing anything until after I had terminated my captive agreement...I just felt it would be too confusing to be working under the captive sign and placing business in an independent environment with brand new appointments.

I also spent a bucketload of money to an attorney to find out what I could and could not do within the boundries of my captive agreement (not Farmers). It turned out that my state does not enforce the non compete agreement, but does enforce the non solicitation agreement...so although I could not be prevented from opening an office, I could be stopped from soliciting the captive policy holders for a one year period of time...however, they could approach me, and for the few clients who did come my way, I asked them to sign non solicitation notices to protect my interests. Because I had a one year buy out from my captive company, that's how they kept defectors in line...the payments would stop if there were any violations of the agreement.

I'm certainly not sorry I made the move...and within two years, my income matched my captive income...and I will concede that within certain captive agreements, if the migration can begin before termination, then perhaps it works better than what I experienced...but from what I've gathered over the years, in a 'conventional' captive termination where the office closes and reopens under the independent sign, I have yet to see a large transfer of business from captive to the same independent agency.

[AgencyEquity]

Captive Agents are free agents, nobody should be held back because of threats, this is not how the system is meant in a free market economy. Nobody owns you, you own yourself and your services. You must abide by a contract, you can also take advantages of state laws that protect you. A contract has to be legal, provisions that violate state laws are void. However, anyone thinking about leaving should consult with an attorney to make sure they get sound legal advice and make decisions that will their careers. Lastly, even if someone does have a one year no compete clause, the first year of starting an independent agency can be focused on getting new clients and the 2nd year on recapturing previous clients. However in many cases, it get’s better than that. Is going independent for everyone? Not at all, but it’s for the people who want it.

[Everett]

Hi NewinSD,
Let us know your location so we will guide you accordingly.
Different countries have different strategies, terms and conditions.

[sacman]

d's ins-

Not that I question you results or others you know, but it is odd that we have such different experiences.
Maybe its regional, maybe because most of the ones I know that went IA are Farmers agents and they are not a household name in my area. Not sure. I am aware of several agents that left other captives that are thriving however I do not know what their conversion rate is.

For the record, I didn't move anybody before my resignation date.
All of my conversions were done after I had left.

I can't agree more with you that I'm not sorry I left either.
It was hands down the best move I've ever made and my only regret is not doing it sooner.

[d's insurance store]

Sacman, as a captive for 15+ years with one of the big 3 (not Farmer's, so draw your own conclusion), I was an over the top, high touch, warm fuzzy servicing agent. Birthday cards, holiday cards, pre renewal letters, post renewal thank you letters, access to my home telephone number, and so on and so on...you certainly know the type and the drill.

Most of that kind of servicing was done will all sincerity and enjoyment of the service aspects of the job, but somewhere in the back of my mind after 10 years or so, I could see an end point coming and a transition to independent agency, and so I thought that all that extra service would translate well if/when that change took place in retaining clients.

I can't tell you the number of phone and personal conversations I had with insureds, with them complaining about rates or claims and telling me I was the 'only' reason they remained with the carrier...and after years of that, I began to believe the hype. When I was leaving, my business plan called for a retention of 25% of my clients...figuring that half were aligned with the carrier, half with me, and of my half, I could probably do better for half of that group...thus the 25%. For those I shared that figure with who were with the same captive, they scoffed and said I was way TOO conservative...that someone as well known and well liked as myself should be able to capture at least 60%.

It was a long time ago, but I can still feel the resentment over the small number of clients who actually made the move to my new operation. It wasn't so much those who never had a need to call, paid their bills on time and had the occassional claim. It was the segment who took advantage of what service points I had to offer, calling me late at night at home to arrange for a towing and road service claim...those who asked me to come to their home or office to pick up a late pay premium check...people who wanted rates when switching cars and pulling out a list of 15 different models wanting rates for all of them...those 'kinds' of clients, who certainly didn't get the same level of service from their newly assigned agent, but who had no problem receiving that kind of treatment from me, and still complaining about something all the time. It was those who chose to remain with the captive carrier and had no inclination to support my efforts that forever soured me on that level of service.

I did not ever again rise to that service level, and you know what...as an independent, my sales and retention has never been higher, so, my conclusion is if I was stupid enough to to offer that service, and they were smart enough to take advantage of what was offered, who was the moron?

[sacman]

D's-

Although I understand why you don't continue to do the "touchy feely" customer service, I don't think it was stupid of you to do so. You should never apologize for offer that level of service. I also did many of those things, probably not to the same extent as you, and quickly learned that many people simply do NOT appreciate it.

About five years ago during a very cold November rain storm I got a call from a young lady who had a flat tire at a gas station. Her husband was out of town and her two year old child was in the car with her. She had liability only so no towing coverage. I left my office and changed her tire. In my work clothes in freezing rain. She thanked me profusely for helping her out. On her next renewal she cancelled her auto insurance policy with me and went somewhere else because she found it a bit cheaper. My conclusion is that people don't expect that level of customer service.

In my area Farmers only has about a 3% market share, so they are not exactly a household name. This could be why my conversion rate is what it is. I have been very surprised by some of the clients that showed loyalty to me and were adamant about switching over immediately and suprised about what I considered "A" list customers that have not responded yet to any of my marketing. I know that the newbie agent that took over a good chunck of my agency was bad mouthing me and spreading lies. Ironically, that agent only lasted a year or so after my departure and is out of the industry and my agency is bigger and better than ever before.

Like you, my sales and retention are beyond my expectation from when I left. (16 years with FIG, 4 as IA).
I do still market the remaining clients from my old agency, and I still write at least one per month.
Do you still market your old agency? I am constantly getting phone calls from customers of the 'big 3' and my closing ratio is fantastic when quoting against them. I would venture to say that many of your old book is shopping and might be responsive.

Best of luck, and I enjoy your post.

SACMAN

[lonestar]

Sacman & D's Ins, I would venture to guess that customers of certain insurance companies are more loyal to, let's say, State Farm, than other companies who historically have advertised much less. SF has really done a good job at branding, and has not been shy at spending big dollars on advertising. I recently left Farmers, and it seems that my clients and the clients of other FIG agents I know are more loyal to the the agent, whereas the SF cliets seem more loyal to the company, and less to the agent. That's what a good advertising campaign will do for you...

[d's insurance store]

You know, Lonestar, it could be a lot of things...and company loyalty might be one component. I was merely narrating my experience of going from captive to independent as a smaller, full line agency owner, and how my assumptions about where I fit into the hierarchy of clients lives, at least in regards to insurance, proved to be way off base.

In my mind, because of my business practices and the localized reinforcement of day to day transactions with clients, I had elevated my standing much higher than it proved to be. When the opportunity came to stay or switch with former clients who could have stayed with my agency in its new form, they stayed. Even when they would have been advantaged with rates or coverage or both.

Too much effort? Too little time? Busy lives? Signing new papers and writing new checks? Happy with the status quo? Whatever...it all boiled down at the time to a significant disconnect on my part about anticipated client behavior. As I've recently posted, unless triggered by threads like this, I'm over it...life is good, the agency prospers, dinner is on the table, blah, blah, blah. I'm happy with the conclusion that I won't behave that way going forward because it appeared to have no bearing on my proposed business model. And I've learned to set boundries about just how far my business reach can go.

There were isolated cases, where I did hear from former clients who'd gotten themselves into some pickle or another because of bad advice from their assigned agent, or I wasn't watching out for them, and I said a silent prayer of thanks that it didn't affect my contigency bonus...but, hey, everyone of my former clients had the ways and means to hire me for my insurance talents back then, and if they chose not to, oh well.

[glen]

Hi Kevin,

You might want to consider a Fiesta Auto Insurance and Tax Service Franchise http://www.fiestafranchise.com. You can be selling insurance and doing taxes in 1-2 months.

Thanks,
Glen

[AgencyEquity]

Clusters, most especially for the small to mid-size agency, is a great way to go. My site has an extensive listing of clusters throughout the USA.

[sweetie1859]

I am in total agreement with D's Insurance Store! After reading all the other opinions I will have to say this is the best! I worked for several Insurance Carries and have 9 years of Insurance Experience. I have been both a Commercial Insurance Underwriter and a Marketing Rep. Meaning I worked with many Independent agents.

For the past several years I have been working for an Auto Glass Company making sales calls on Independent Insurance agents and captives. I can tell you that I see many captaive agents with set ups where their their wifes are Independent Agents in the same building or next door to them.

I can tell you that my boyfriend is a Captive agent too! We are in the process of getting an Independent agency up and running! The advice that D's Insurance store gave is exactly what you have to do, just keep quiet about it. It really isn't any of his current DM business what I am doing. If he is unable to place a peice of business he can send it to me and I will be able to find a home for it, without touching his current book. He is also on the fence about trying to roll his 30 plus year book that he had purchased about 4 years ago. We have talked to several different clusters or whatever you want to call them. Most are more then happy to work with us! We did find one that wouldn't allow us to put an agency in my name, and they told us that he would have to cut ties with the captive and it was all or nothing. The one we are considering is SIAA. I can tell you when I was a Commercial Lines Marketing Rep SIAA was one of larger clusters and probably the only one I was familiar with at the time. It seemed to us they would give us the most back with regards to profit sharing. It will be almost impossible to get contracts on your own, without going through a cluster agency. Companies are going to want to know you are going to use them and they don't don't had contracts out to anyone. I was working with an SIAA agent when I was a rep and I they were looking at getting a direct contract with my company, I had to tell them they need to keep writing through SIAA until they could come up with at least 100,000 in premium inorder to get a direct. You will have to give them a commission cut and will have up front fees for a couple of years but in the long run it's worth it and the profit sharing you will recieve will be more than you would get if you just went off on your own. Plus you will have access to 40 or so carriers!
none regret going independent.
Sorry I am rambling on, but I don't see the harm in starting an independent agency if it helps your current clients out. And if he decides to roll his book we will have somewhere to put them. Also, in talking to a ton of captive agents that went iIndependent they tell me they were able to roll 80% of their books!!! Again, it probably depends on how well you know your clients. Good luck to you!!!!

[wsouth44]

by AgencyEquity on Wed Feb 23, 2011 11:42 pm

Clusters, most especially for the small to mid-size agency, is a great way to go. My site has an extensive listing of clusters throughout the USA.

That's quite a nice list you have there. I had no idea there were so many out there. I have a question though: I assume if it says USA after their name then they are a national network of agencies. What does it mean when it says "ALL" after their name?