My Projections

[nayers]

I am more of a lurker on this site, and have only made a couple posts. I am about 3 months away from opening the doors to my own agency, and wanted to give some of my projections and see what you guys think.

about:
I will be partnering with a long time friend also in the insurance industry, we have collectively 15 years of insurance experience. I was recently let go from AAA for being "to progressive" and a "maverick" I was the number 1 producer in my district for the 12 months I was with them, and 2nd place wasn't even close. My average month had me writing between 60-80 policies a month at approx 50k in new premium every month. The firing was very political and stupid on their part (another time, another thread) We will be selling P&C, Life, and eventually commercial. We will be a fee based brokerage and will charge a broker fee. The location we are in talks for is in a very VERY desirable location. They are asking for $2 per sqft at 1200 sqft. (Welcome to the Bay Area) Keep in mind, we will negotiate that and hopefully do a progressive lease.

I made my living the typical way "smiling and dialing" and building a network of various referral sources. Those same sources I will attempt to draw on when going live. I do have a small reserve for savings that I could live off of for the next 6 months if need be, and we are currently in talks with a couple of investors that we know personally. It would be a partnership, and we split profit 50/50. We are thinking of filing an S-corp, and will have written agreements in place. Enough about me, here is what I have projected:

First Year Start up Cost: $62,250
(Building for the first year, E&O, GL, computers, software, etc. Comparative rater, health insurance, small office renovation, utilities, furniture, phone and internet systems...etc, etc, etc)

* I figure between the two of us, we can write $42,250 in net written premium a month.

* Average premium per policy where we live is $650

* That breaks down to 65 policies a month AS AN OFFICE. At an average of 25 open office days a month, that equals out to 2.6 policies a day.

* Average broker fee for policies written in my part of the state and area is $150

* $42,250 premium at 15% commission is $6337 a month or $76,044 annually.

* 65 apps a month at $150 per for broker fee is $9750 or $117,000 annually

* $117,000 plus $76,044 is $193,044 in revenue. Minus first year expenses of $62,250 and it is $130,794 or $65,397 each GROSS.

To some, these projections may appear to be a pipe dream, I feel they may be somewhat conservative from my experience. Where I live, we will tap into the SanFran Bay Area market, the Sacramento market, and the Napa valley market. All very expensive places to live and insure. If I am off by 20% either way, I still think that it is a great start. We have 1 viable competitor in town, and 2 viable competitors in the next town.

For marketing, we plan to utilize the location as much as possible, consistent cold calls to existing contacts, tapping into our referral network, heavy utilization of social media, community event involvement, lot's of walking and talking.

My concerns are finding the small to large area's that I am either neglecting, overlooking, or ignorant to. We are doing as much research into the tax situation, filling, group affiliation, etc.

 

[Crabcake Johnny]

I will be partnering with a long time friend also in the insurance industry, we have collectively 15 years of insurance experience.

This is the first and biggest mistake you're going to make. In general, partnerships don't work. When they do work, there's a clear division of duties. One is responsible for "front of the house" and the other is responsible for "back of the house" (ie: accounting and financial matters.)

If you're entering into a partnership where both of you will be responsible for sales, it's gonna a rough road. One will outsell the other. You're both gonna say that it doesn't matter before it happens - oh, but it'll matter after it happens.

 

[nyc2phi]

How are you planning on getting companies to represent? Are you looking to go direct or cluster ?

You also may find it difficult to charge a fee and be competitive on price at the same time, but that is more of a trail and error part on your job.

 

[nayers]

This is the first and biggest mistake you're going to make. In general, partnerships don't work. When they do work, there's a clear division of duties. One is responsible for "front of the house" and the other is responsible for "back of the house" (ie: accounting and financial matters.)

If you're entering into a partnership where both of you will be responsible for sales, it's gonna a rough road. One will outsell the other. You're both gonna say that it doesn't matter before it happens - oh, but it'll matter after it happens.

We will both be in charge of sales. He has a background in commercial lines, and has more community connections. It will be a 51/49% split with certain checks and balances in place.
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How are you planning on getting companies to represent? Are you looking to go direct or cluster ?

You also may find it difficult to charge a fee and be competitive on price at the same time, but that is more of a trail and error part on your job.

We will be going direct. Every other company in our non standard niche charges fees, usually more than $150.

 

[djs]

You've obviously put some thought into this, but in some ways, you are dreaming.

Lets go through a few things:
- In the bay area, I agree average premium is around $650 annually. Maybe a little higher, but this is a good number to use.
- If you charge $150 broker fee for preferred business (the $650 range stuff), you won't write many clients. Average broker fee in the bay area for preferred personal lines is probably near $0. For non-standard, you might get $50 to $75, for commericial, you might be at $150 or so (average).
- You need to account for policy cancellations. Yes, you can argue that gets you another broker fee, but people wise up quickly and will shop. This can be 20% of your book.
- 65 apps a month for 2 people isn't a problem if you have a marketing plan going on. This will cost money, don't forget to include it.
- Captives have 80% of the personal lines market here. When you say 1 competitor in town, this simply isn't true, you need to remember the captives in town compete heavily for this business.
- Clients like name recognition (especially preferred). For even slightly more, clients will take a State Farm or AAA policy over a 'Joes Pizza and Insurance' policy every day.
- 15% commission is probably not realistic. You can get this through companies like SIAA or other MGA's, but then you have to pay them a good chunk of this money. Getting appointments with Safeco, Travelers, etc, on your own, will be a challenge.
- You say you have 1 competitor in town, but then you say you are marketing the entire Northern California area, which will have far more than the 1 competitor you refer to.

Dan

 

[nayers]

You've obviously put some thought into this, but in some ways, you are dreaming.

Lets go through a few things:
- In the bay area, I agree average premium is around $650 annually. Maybe a little higher, but this is a good number to use.
- If you charge $150 broker fee for preferred business (the $650 range stuff), you won't write many clients. Average broker fee in the bay area for preferred personal lines is probably near $0. For non-standard, you might get $50 to $75, for commericial, you might be at $150 or so (average).
- You need to account for policy cancellations. Yes, you can argue that gets you another broker fee, but people wise up quickly and will shop. This can be 20% of your book.
- 65 apps a month for 2 people isn't a problem if you have a marketing plan going on. This will cost money, don't forget to include it.
- Captives have 80% of the personal lines market here. When you say 1 competitor in town, this simply isn't true, you need to remember the captives in town compete heavily for this business.
- Clients like name recognition (especially preferred). For even slightly more, clients will take a State Farm or AAA policy over a 'Joes Pizza and Insurance' policy every day.
- 15% commission is probably not realistic. You can get this through companies like SIAA or other MGA's, but then you have to pay them a good chunk of this money. Getting appointments with Safeco, Travelers, etc, on your own, will be a challenge.
- You say you have 1 competitor in town, but then you say you are marketing the entire Northern California area, which will have far more than the 1 competitor you refer to.

Dan

Thank you for the response. The direct niche market competition for non standard is more for a 10-15 mile radius. Sure there is a preferred agency on nearly every corner, and we hope to build a good mix of standard v nonstandard clients. I have worked in the past for a start up (in California) non standard agency where $75 broker fees was no problem. No one had ever heard of the company, but we were in a good (not great spot)

 

[Crabcake Johnny]

We will both be in charge of sales. He has a background in commercial lines, and has more community connections. It will be a 51/49% split with certain checks and balances in place.
- - - - - - - - - - - - - - - - - -


We will be going direct. Every other company in our non standard niche charges fees, usually more than $150.

One of the best decisions you'll ever make it to sit down with an attorney and hammer out a partnership agreement. My legal agreement literally saved my finances and probably marriage.

I took on a partner for an agency years back. Not only was I outselling him, which started to cause some animosity, but he ended up getting arrested and sentenced to 6 months in jail over a domestic issue.

He had the audacity to call me with a list of his personal bills that I needed to pay. Thankfully, the rent-an-attorney I hired put a clause into the partnership agreement regarding felony convictions and inability to perform duties clauses.

Aside from that, I started to loathe walking up every day knowing I was bringing much more revenue into the business and it would have ended in an ugly manner anyway.

Lawyer + partnership agreement.

 

[nayers]

One of the best decisions you'll ever make it to sit down with an attorney and hammer out a partnership agreement. My legal agreement literally saved my finances and probably marriage.

I took on a partner for an agency years back. Not only was I outselling him, which started to cause some animosity, but he ended up getting arrested and sentenced to 6 months in jail over a domestic issue.

He had the audacity to call me with a list of his personal bills that I needed to pay. Thankfully, the rent-an-attorney I hired put a clause into the partnership agreement regarding felony convictions and inability to perform duties clauses.

Aside from that, I started to loathe walking up every day knowing I was bringing much more revenue into the business and it would have ended in an ugly manner anyway.

Lawyer + partnership agreement.

noted, thank you, I appreciate it.

 

[djs]

Wow, I'm now confused.
You were working for AAA, which is, simply put, a preferred+ company. Unless you worked for the Western United side where you had AAA feeding clients to you.....

Production numbers from AAA are somewhat meaningless if you are looking at non-standard.

Location doesn't matter for non-standard (has to be reasonable, but not great).

I agree that non-standard, you can get a broker fee, but in recent years, this market is far more competitive than it used to be and if I know of an area charging $75 or more in broker fees, I swoop in and work on finding their clients. Very successful at this.

Non-standard - work the entire state. No radius needed.

Of course, if you are writing 65 nonstandard policies a month, you'll need to add a CSR full time to keep calling these clients to make sure they make their payments. If not, you're book rolloff will be HUGE.

Dan

 

[nayers]

Wow, I'm now confused.
You were working for AAA, which is, simply put, a preferred+ company. Unless you worked for the Western United side where you had AAA feeding clients to you.....

Production numbers from AAA are somewhat meaningless if you are looking at non-standard.

Location doesn't matter for non-standard (has to be reasonable, but not great).

I agree that non-standard, you can get a broker fee, but in recent years, this market is far more competitive than it used to be and if I know of an area charging $75 or more in broker fees, I swoop in and work on finding their clients. Very successful at this.

Non-standard - work the entire state. No radius needed.

Of course, if you are writing 65 nonstandard policies a month, you'll need to add a CSR full time to keep calling these clients to make sure they make their payments. If not, you're book rolloff will be HUGE.

Dan

I was with AAA for a little more than a year. I came from the nonstandard side of the industry from another company. Production numbers were greater where I came from prior to AAA. My wife will be the CSR and work on customer retention.