How to Start an Insurance Company

ON THIS PAGE

• How to Start an Insurance Company
• 15 Steps To Start a Insurance Company
• How Big is the Insurance Company Industry?
• What are the Key Segments of the Insurance Company Industry?
• What External Factors Affect the Insurance Company Industry?
• Who are the Key Competitors in the Insurance Company Industry?
• What are the Key Customer Segments in the Insurance Company Industry?
• What are the Key Costs in the Insurance Company Industry?
• What are the Typical Startup Costs for a new Insurance Company?
• Additional resources in the Insurance Company Industry

 

How to Start an Insurance Company

If you’re looking to start an insurance company, you’ve come to the right place since we’re going to show you exactly how to do it.

We’ll start with key insurance company industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.

Then we’ll discuss keys to not only starting an insurance company, but succeeding in it!

Before we continue, here’s where you can access your insurance business plan template since having a plan will be key to your success.

Download our Ultimate Insurance Business Plan Template here

15 Steps To Start a Insurance Company:

Starting an insurance company can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful insurance company.

1. Choose the Name for Your Insurance Company

The first step to starting an insurance company is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your insurance company:

1. Make sure the name is available: Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
2. Keep it simple: The best names are usually ones that are easy to remember, pronounce, and spell.
3. Think about marketing: Come up with a name that reflects the desired brand and/or focus of your insurance company.

 

2. Determine the Type of Insurance Company You Will Launch

When determining the type of insurance company to launch, consider your expertise, resources, market opportunities, and the specific insurance needs of your target audience.

Here are some common types of insurance companies you can consider:

1. Life Insurance Company: Offer life insurance policies that provide financial protection to policyholders’ beneficiaries in the event of their death. This includes various types of life insurance, such as term life, whole life, and universal life insurance.
2. Property and Casualty Insurance Company: Provide insurance coverage for property (e.g., homes, businesses) and liability (e.g., auto, general liability) risks. This category includes homeowners insurance, auto insurance, and business insurance.
3. Health Insurance Company: Specialize in health insurance policies that cover medical expenses, hospitalization, and healthcare services. Health insurance can include individual plans, group plans, or government-sponsored programs.
4. Travel Insurance Company: Offer insurance products that provide coverage for unexpected events during travel, such as trip cancellation, medical emergencies abroad, and lost luggage.
5. Pet Insurance Company: Focus on pet insurance policies that cover veterinary expenses for pet owners, including illness, accidents, and wellness care.

 

3. Develop Your Insurance Company Plan

One of the most important steps in starting an insurance company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

To enhance your planning process, incorporating insights from a sample insurance business plan can be beneficial. This can provide you with a clearer perspective on industry standards and effective strategies, helping to solidify your own business approach.

Your business plan should include the following sections:

1. Executive Summary: This section should summarize your entire business plan so readers can quickly understand the key details of your insurance company.
2. Company Overview: This section tells the reader about the history of your insurance company and what type of insurance company you operate. For example, are you a life insurance company, travel insurance company, or pet insurance company.
3. Industry Analysis: Here you will document key information about the insurance industry. Conduct market research and document how big the industry is and what trends are affecting it.
4. Customer Analysis: In this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
5. Competitive Analysis: Here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
6. Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product: Determine and document what products/services you will offer.
• Prices: Document the prices of your products/services.
• Place: Where will your business be located, and how will that location help you increase sales?
• Promotions: What promotional methods will you use to attract customers to your insurance company? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization, and/or social media marketing.
7. Operations Plan: In this section, you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
8. Management Team: This section details the background of your company’s management team.
9. Financial Plan – finally, the financial plan answers questions including the following:
• What startup costs will you incur?
• How will your insurance company make money?
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

 

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

4. Choose the Legal Structure for Your Insurance Company

Next you need to choose a legal structure for your insurance company and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the owner of the insurance company and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start an insurance company together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for an insurance company include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for an insurance company is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations, including the number of shareholders they can have, among others.

Once you register your insurance company, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

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5. Secure Startup Funding for Your Insurance Company (If Needed)

In developing your insurance company plan, you might have determined that you need to raise funding to launch your business.

If so, the main sources of funding for a insurance company to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a insurance company that they believe has high potential for growth.
 

6. Secure a Location for Your Business

Finding the right space for your insurance company is essential for creating a professional and accessible environment for clients and employees. When searching for the ideal office space, consider the following factors:

• Location: Choose a location that is easily accessible to your target clients and employees. A central or well-known business district can enhance your company’s image and accessibility.
• Office Size: Determine the size of the space you need based on your current staff and expected growth. Ensure that the space allows for private offices, meeting rooms, a reception area, and common workspaces.
• Accessibility: Ensure that the office space is wheelchair accessible and complies with disability access regulations. Easy access to elevators and ramps is important for all clients and employees.
• Parking: Assess parking availability for both clients and employees. Convenient and secure parking can be a significant selling point for your location.
• Security: Consider the security of the building and surrounding area. Look for spaces with security systems, access controls, and well-lit parking areas to ensure the safety of clients and employees.
• Proximity to Clients: If you have a specific target market, consider being near businesses or organizations that cater to your client base. This can increase your visibility and potential referrals.

Take your time to visit potential office spaces, assess their suitability, and negotiate lease terms that meet your needs. The right office space can contribute to the success and professional image of your insurance company.
 

7. Register Your Insurance Company with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
 

8. Open a Business Bank Account

It is important to establish a bank account in your insurance company’ name. This process is fairly simple and involves the following steps:

1. Identify and contact the bank you want to use.
2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address).
3. Complete the bank’s application form and provide all relevant information.
4. Meet with a banker to discuss your business needs and establish a relationship with them.

 

9. Get a Business Credit Card

You should get a business credit card for your insurance company to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
 

10. Get the Required Business Licenses and Permits

Starting an insurance company is a complex and highly regulated endeavor. The specific licenses and permits you need will depend on your location, the types of insurance you plan to offer, and the regulatory environment in your region.

However, here are some common licenses and permits you may need to start an insurance company:

• Insurance Producer License: To sell insurance policies, you and your agents (producers) will typically need an insurance producer license. The requirements and licensing process vary by state and may include pre-licensing education, passing an examination, and background checks.
• Business Entity License: If your insurance company is a legal entity (e.g., corporation, LLC), you may need a separate business entity license or registration, in addition to individual producer licenses.
• Insurance Company License: You will need a specific license to operate as an insurance company, issued by your state’s insurance regulatory authority. This license may also be referred to as a “carrier” or “insurer” license.
• Insurance Agency License: If you plan to operate as an insurance agency or brokerage, you may need an agency license in addition to individual producer licenses.
• Surplus Lines License (if applicable): If you intend to sell surplus lines insurance (insurance that is not available through standard insurers), you’ll need a surplus lines license. This type of insurance is subject to specific regulations.
• Non-Resident Licenses (if operating in multiple states): If you plan to conduct insurance business across state lines, you may need non-resident licenses in the states where you operate.

Depending on the type of insurance company you launch, you will have to obtain the necessary state, county and/or city licenses.
 

11. Get Business Insurance for Your Insurance Company

Other business insurance policies that you should consider for your insurance company include:

• General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
• Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
• Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
• Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
• Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
• Professional liability insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
 

12. Buy or Lease the Right Insurance Company Equipment

Running an insurance company involves managing various administrative and technological aspects.

Here is a list of equipment and tools you may need to effectively run your insurance business:

• Computers and Laptops: High-quality computers and laptops for your staff to perform daily tasks, including underwriting, policy management, and client communication.
• Internet Connection: A reliable high-speed internet connection is essential for accessing online resources, communicating with clients, and managing digital documents.
• Office Furniture: Desks, chairs, workstations, and filing cabinets for a comfortable and organized office environment.
• Telephones and Communication Systems: Phone systems, headsets, and conference call equipment for effective communication with clients, agents, and other stakeholders.
• Printers and Scanners: Multi-function printers and scanners for creating physical documents, scanning contracts, and producing hard copies of insurance policies.

The specific equipment you need may vary depending on the size and scope of your insurance company, your specialization, and your operational preferences. Invest in quality technology and tools to streamline your business operations, enhance client services, and maintain regulatory compliance.
 

13. Develop Your Insurance Company Marketing Materials

Marketing materials will be required to attract and retain customers to your insurance company.

The key marketing materials you will need are as follows:

1. Logo: Spend some time developing a good logo for your insurance company. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
2. Website: Likewise, a professional insurance company website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
3. Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your insurance company.

 

14. Purchase and Setup the Software Needed to Run Your Insurance Company

Running an insurance company requires a variety of software tools to manage policies, claims, client relationships, and administrative tasks efficiently.

Here is a list of essential software categories and specific software applications commonly used by insurance companies:

• Agency Management System (AMS): AMS software helps manage client information, policies, and commissions, streamlining agency operations.
• Underwriting Software: Specialized underwriting software assists in evaluating risk, pricing policies, and making underwriting decisions.
• Rating Engines: Rating engines automatically calculate premium rates based on underwriting criteria and policy details.
• CRM Software: CRM systems help manage client interactions, track leads, and improve customer relationships.
• Claims Processing Software: Claims processing software helps insurance companies efficiently handle and track claims from initial submission to resolution.
• Loss Control Software: Loss control tools assist in risk assessment and provide recommendations for loss prevention.
• Fraud Detection and Prevention: Software for detecting and preventing insurance fraud through data analytics and pattern recognition.

The specific software applications you choose will depend on the size, focus, and operational needs of your insurance company. Additionally, consider regularly updating your software to stay competitive and meet changing industry demands.
 

15. Open for Business

You are now ready to open your insurance company. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
 

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

How Big is the Insurance Company Industry?

The insurance company industry has grown steadily, at a rate of 2.7% over the past five years. The 3,232 insurance companies in the U.S. collectively generated $600.8 billion in revenue last year.

 

What are the Key Segments of the Insurance Company Industry?

The main segments of the insurance industry are:

• Auto insurance generates the largest percentage of industry revenue.
• Homeowners insurance accounts for about 15% of total revenue
• Workers compensation and other business-related insurance accounts for about 20% of revenue
• The balance of industry revenue comes from fire insurance, other liability and other types of insurance.

 

What External Factors Affect the Insurance Company Industry?

A number of factors affect the performance of the insurance company industry. These drivers include:

• Number of motor vehicle registrations – The increase of vehicle registrations also means higher demand for automotive insurance policies. This year, motor vehicle registrations are rising.
• Homeownership rate – Growth in the homeowner’s insurance segment is dependent on new home purchases. This year, homeownership in the US is expected to decline.
• Natural disaster index – A high natural disaster index increases the likelihood of consumers acquiring insurance policies. However, natural disasters do occur frequently, which typically requires high pay-out for this segment.
• Yield on 10-year Treasury note – Higher interest rates mean greater income for insurance companies. But this year, interest rates on 10-year treasury notes will be decreasing.
• Regulation for the Property, Casualty and Direct Insurance Industry – State regulations affect insurance companies’ profitability. However, the regulatory environment is expected to remain stable this year.
• S&P 500 – When S&P 500 is bullish, there is higher dividend from investments for insurers. The S&P 500 is expected to increase this year.

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Insurance Business Plan Template and complete your plan and financial model in hours.

Who are the Key Competitors in the Insurance Company Industry?

• State Farm Mutual Automobile Insurance Company
• Allstate Insurance Company
• Liberty Mutual Group Inc.
• The Travelers Companies Inc.

 

What are the Key Customer Segments in the Insurance Company Industry?

The customer segments in the Insurance Company industry are the commercial and private markets.
 

What are the Key Costs in the Insurance Company Industry?

Loss and loss adjustment expenses – At over 60%, Loss and loss adjustment expenses are by far the largest cost for industry operators.

Wages – Less than 10% of the industry revenue this year will be accounted for wages and is expected to decline in the next five years.

Other – Purchases make up a small portion of the current industry revenue; while rent, utilities, and marketing expenses account for about 3%, and depreciation is 1%.
 

What are the typical startup costs for a new Insurance Company?

Starting an insurance company will cost you around $5,000 to $50,000 or more.
 

Insurance Business Plan Example PDF

Download our insurance business plan pdf here. This is a free insurance business plan example to help you get started on your own insurance plan.
 

Additional resources in the Insurance Industry

For additional information on the travel agency market, consider these industry resources:

• US Federal Reserve : www.federalreserve.gov
• Property Casualty Insurers Association of America: www.pciaa.net
• Insurance Information Institute: www.iii.org
• American Land Title Association: www.alta.org
• Insurance Agency Mavericks: www.insuranceagencymavericks.com