Start from 0 as an independent or to buy a captive agency?

Apr 25, 2019

  1. Laura Hernandez

    Laura Hernandez New Member

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    I'm unsure what to do here- I've the opportunity to buy an established 25 year agency good book, but is not growing unless I work 24/7 the agency has a high price tag ( a reasonable one) but more than $1M. Or should I start my own agency with $20K and no debt, no book completely from 0?


    Based in Texas.
  2. fed up

    fed up Guru

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    Scratch agencies are tough to keep going unless you have a huge savings account. How long have you been in insurance? How many people will you hire to run your scratch agency? How many people do you know?
    fed up, Apr 25, 2019


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    @Laura Hernandez There are many factors that would go into making the decision. First, a book that isnt growing where revenue is over 1MM would be enough to close the door on that idea right away. 1MM pricetag means what a 5MM book? 3? regardless if you are retaining 90% of your customers which is a good solid retention rate, on a 5MM book you need to write $500K just to break even. That's not to mention the likelihood that your conversion is going to lose a few more just for it being new management.

    @5MM the book should be self-perpetuating and you shouldn't have to do much more than hire competent staff to handle your referral clients. If this was an indy agency, you have some play in how you do business and who you align with and although there would be many number-crunching sessions I would have to do, it would at least be a plausible scenario... IMO as a captive its just a money trap and a bad move.

    Starting out as an Indy is tough without a safety net... You have 20K, and starting one isn't as hard for the right person... and not everyone is the "right" person. You can be great at insurance and bad at business or vice versa. The best will do both well.

    My vote, having been in both the captive and indy world is that Indy is definitely a bit more challenging because there are far more variables than in the captive world. but it's doable and a choice most don't regret. Search the forums and find me all the posts about captives trying to escape, then look for all the indy agents wanting to get a captive agency going to replace their indy practice. The ratio is likely about 1000-1.

    You can directly contract with carriers but getting a good mix of contracts from scratch can be difficult without an agency network. Make no mistake, you CAN do it without a network and this is coming from a guy that founded a network. A network just takes the edge off of the processes, helps with carrier relationships, and in many cases can maximize your bonus potential far earlier than you would on your own.

    When choosing an access provider, there isn't a perfect fit for everyone and there are MANY different ways networks work. Here are some great questions to ask when looking for a cluster/aggregator for your agency.

    1. Do you have a good carrier mix across the lines of business I want to use in my agency?
    2. Do you have any production requirements?
    3. Do you provide an agency management system?
    4. Do you provide comparative raters?
    5. Do you have a non-compete or non-solicitation if I decide your network isn't for me? If so... why?
    6. Do you have any exit fees?
    7. Can I sell my agency at some point?
    8. HOW do I access the carriers... do I submit everything to you, or do I get DIRECT access to the carrier?
    9. How long is my contract for, and do I get ownership right away, or over time?
    10. What are the startup fees and are you willing to work with me?
    11. What is the commission rate?
    12. What share do I get of the contingency bonuses?
    13. Do you offer guidance and training during the startup phase of my agency?
    14. Are you open to me contacting some of your member agencies?

    There are more, but I think the MOST important thing someone can do other than reading the contracts of many networks, speaks to the owner/president of each network to get a feel for the culture. Let's face it, some people you like the minute you meet them, and then there are others that make your skin crawl...

    There are many great organizations out there, and there is an opportunity for you to do this even without a network. If you are going to work your tail off, you ought to be working for you, and not to pay off that 1MM note.
    BADTROUT, Apr 25, 2019