How to start an insurance company in 7 easy steps

Perhaps you’re a successful insurance agent ready to start a new chapter in your business. Or maybe you’re considering a career change and see potential for profits and stability in the insurance industry.

Whatever your reasons for wanting to start an insurance business, it can be a great investment. But getting an independent insurance agency off the ground takes a lot of planning and hard work – and that’s after you’ve become a licensed agent.

Let’s take a closer look at what’s involved in each step to starting a successful insurance company.

Step 1: Write a business plan

A sound insurance agency business plan is a road map for success, and it puts your insurance company on the right track. This document demonstrates your commitment to any potential stakeholders, such as investors, employees, and insurance carriers.

It also helps you:

• Set goals
• Avoid potential roadblocks
• Identify risks
• Determine financial needs and resources

Your business plan may be adjusted over time. Ideally, it will provide guidance long after your insurance agency is launched.

At a minimum, your business plan should:

• Introduce who’s involved in the business, and who’s responsible for executing the plan.
• Explain your plan for getting customers, and the insurance products and services you'll provide.
• Identify your target market, suppliers, and competitors.
• Describe what sets you apart from the competition.
• Analyze your risks.
• Include an initial budget that covers start-up costs and cash flow projections.

A business plan is the foundation of building a new business. It helps you secure financing and start-up capital, zero in on your market, and choose your business location.

Step 2: Choose your legal structure

How you structure your business will determine the amount of personal liability you take on. There are several structures available:

• Sole proprietorship
• Partnership
• Limited liability company (LLC)
• Corporation
• S corporation

Each structure has its own risks and benefits.

For example, a sole proprietorship is the simplest structure. But it also carries the greatest personal liability. This means that you may have to use your personal assets to settle unpaid business debts. And if you’re sued, your personal assets are also at risk. On the other hand, LLCs and corporations offer a legal distinction between you and your business entity. They are more complex and costly, but they provide protection for your personal assets in most circumstances.

Whichever structure you choose, the right business insurance can help protect your company and limit risks.

The U.S. Small Business Administration (SBA) can help you learn more about how to choose your business structure.

Step 3: Choose and register your agency’s name

Once you have the serious tasks of developing a business plan and choosing your structure out of the way, you can have a little fun.

If you’re a sole proprietor, by default the legal name of your business is your own name. But you can also choose a “doing business as” (DBA) name. This is a chance to use your creativity and pick a name that:

• Is easy to say and spell.
• Meets your state’s requirements.
• Conveys your agency's benefits.
• Is easily searchable.

But be aware – most states prohibit or restrict the use of certain words to prevent a business’s name from deceiving or misleading the public. For example, “bank” or “banking” are commonly restricted words. Check with your Secretary of State’s office to learn about your state’s specific naming restrictions.

Once you settle on a name, register it with your state's government. You’ll likely be charged a minimal registration fee.

Step 4: Get a tax ID number

The IRS requires all corporations and partnerships to use a federal employer identification number (FEIN) when filing their taxes. You’ll also need this number to open a business bank account or credit card.

If you are a sole proprietor or a single member LLC, you may use your Social Security number.

Step 5: Register your business with your state

Once you have your tax ID, you’ll need to contact your state insurance commissioner’s office. Typically you must register as a “resident business entity” for state and local tax purposes.

Your state will likely charge a registration fee and provide a checklist to make sure you’re aware of and complying with all state requirements.

Step 6: Get your business licenses and permits

Though you are a licensed agent, you may need a general business permit or license to operate legally. You can find which permits or licenses you must carry by using the SBA's Business Licenses and Permits tool.

You should also check with state and local agencies to make sure you’re in compliance with regulations.

Step 7: Purchase insurance to protect your investment

The types of insurance your insurance company will need depends on the structure and assets of your business. Independent agents already know how important it is to carry adequate liability coverage. But as a business owner, you must also consider a variety of other risks.

General liability insurance protects you from customer property damage and injuries.

Errors and omissions insurance (E&O), also known as professional liability insurance, protects you from lawsuits related to accusations of errors or oversights. Some states even require that you have an E&O insurance policy in place to register your business.

If you buy or lease an office space, you’ll also need commercial property insurance. This will pay to repair or replace stolen, lost, or damaged business property, including your building, furniture, supplies, and office equipment. You can bundle commercial property insurance and general liability insurance in a business owner's policy (BOP).

Cyber insurance protects insurance companies from the high costs of a data breach or malicious software attack. It covers expenses such as customer notification, credit monitoring, legal fees, and fines.

Finally, you will need to review your car insurance policies if you use a vehicle for business. If you buy a company-owned vehicle, you will need commercial auto insurance. If you drive your personal car for business appointments, then you may need hired and non-owned auto insurance (HNOA).

Starting your own insurance company can be a daunting task. But with hard work, you can turn your vision into a reality.

If you’ve already launched your insurance agency, or are ready to take the plunge, we’re here to help. Our licensed agents can provide expert guidance and help answer your questions to find the coverage that’s right for your business.