Are you thinking about starting an insurance business? You could be a few steps away from swimming in profits. Let’s give you a tiny sneak peek of how lucrative the industry is. According to the Insurance Information Institute, in 2022 alone, property/annuity/casualty and life insurance premiums totaled a whopping $1,475.2 billion!
Like any other business, starting an insurance business can be daunting, especially without sufficient information. However, don’t panic. By the end of this guide to insurance business startup, you’ll understand the insights into various insurance providers and different types of insurance businesses such as auto care, homeowners, life, healthcare, and prices. Also, you’ll learn about the industry’s current state and more. Keep reading to run a successful insurance business. Let’s start!
Different Types of Insurance Businesses
Before diving into the nitty-gritty of this guide to insurance business company startup, you must first understand the different types of insurance businesses. Let’s get into it.
1. Auto Insurance
An auto insurance policy is a contract between an insurer and a vehicle owner. Here, a car owner agrees to pay premiums in exchange for financial loss protections stemming from listed perils. Typically, the policy covers vehicle damages (including another driver’s vehicle), bodily injuries due to an accident, property damage, medical bills, and funeral expenses due to an accident. According to Forbes, the national average for the policy is $2,150 annually.
2. Life Insurance
Life insurance is an insurance provider and policyholder agreement. In this arrangement, a policyholder agrees to pay a certain amount of premium whereby, in case of their demise, a particular amount of money will be payable to their beneficiaries. Besides the creation of wills, more people now welcome the idea of getting life insurance to protect their loved ones. Typically, there are two life insurance plans: Term insurance, which lasts for a couple of years, and permanent life insurance, which stays in force for a lifetime.
Life insurance costs depend on factors such as the type of policy, gender, and age. For instance, according to Forbes, on average, a 20-year-old pays for life insurance $159 annually, a 30-year-old man will pay $250,000 to get a term life insurance policy, and $142 annually for a 30-year-old woman.
3. Health Care Insurance
Health care insurance is also known as health or medical insurance. Typically, most medical professionals charge hefty amounts for specialized care. For this reason, most people see it fit to take health care insurance to protect their finances from any unforeseen medical burden. Usually, the policy covers a portion of the policyholder’s medical bills. Payable premiums and insurance coverage costs depend on the details of the policy. According to USA TODAY, on average, a person will pay $456 monthly for the plan and nearly $111 for coverage sponsored by the employer.
4. Homeowners Insurance
Homeowner’s insurance plans will cover roofing damages, personal belongings, and other home and assets damages in exchange for an agreed premium. Also, a competent homeowners insurance company will cover home security challenges like burglary. The policy also caters to accidents in a home and expenses when living outside your home during a remodeling project. According to USA TODAY, the average cost for the policy ranges between $1,117 to $2,950 annually, depending on dwelling coverage limits. Also, most people go for home and auto insurance services, an excellent way to significantly reduce premiums.
5. Business Insurance
Business insurance coverage protects businesses from listed perils, such as lawsuits, vandalism, property damage, loss of income, theft, staff illnesses, and injuries. It covers business’ intellectual property, physical property, and assets. Although there’s no such thing as business bankruptcy insurance protection, the good news is it doesn’t relieve the insurer’s obligations under the policy. According to Forbes, business insurance costs between $14 to $124 monthly depending on your coverage of choice among general liability, business interruption insurance, commercial property, and inland marine.
The Current State of the Insurance Industry
Let’s agree. The world is changing faster than many people can keep up. From climate shifts, workforce, customer expectations, and geopolitical and macroeconomic volatility. Such factors force enterprises and insurance businesses to change their technology infrastructure, business models, and organizational culture to maintain profits and survive. These forces are the catalyst that fuels reinvention in how the insurance industry conducts its business and its general purpose to society.
Although insurers are society’s safety net, they are slowly realizing they have a major role in helping mitigate loss severity, prevent risks, and close life and non-life protection gaps in the market. All these must happen in the growing reality of financially unsupportable risks. Rising threats such as an explosion in cybercrime, vast underinsured and uninsured populations, and catastrophic climate changes are forcing insurers to reinvent how to confront disruptions due to changing customers and the environment in advance. Such a case calls for proactive risk management to help minimize the degree of impact. To achieve such a level of transformation, insurers must adopt new technology (including AI technology) to get actionable insights from any new data available.
Why Various Insurance Companies Succeed and Their Market Share
A proper guide to insurance business setup isn’t complete without diving into the top five insurance companies. In this section, you’ll understand your competitors better and their market share.
According to the Insurance Information Institute, State Farm company leads the pack in property/casualty insurance with a market share of 9.2% by written direct premiums. Berkshire Hathaway Inc. follows closely with 6.6% and Progressive Corp with 6.1%. Allstate Corp takes the fourth position with 5.3%, and Liberty Mutual closes the list of the top five with a 5.1% market share.
MetLife Inc. is the lead writer in life/annuity insurance by direct premiums, with the lion’s market share of 12.1%. Equitable Holdings follows with 8.2%, then New York Life Insurance Group with 5.2%, and Massachusetts Mutual Life Insurance Co. with 5%. Prudential Financial Inc. comes fifth with 4.9% market share.
Let’s face it. The insurance landscape is ever-changing. Even so, what are the industry leaders doing to maintain their top seat in an industry that’s considered uninspired, stuffy, and stodgy?
Successful insurers have mastered offering superior digital experience and flexibility. That’s what modern customers need – ease of business. They want to scheme insurance documents, pay premiums, and access insurance evidence from the comfort of their sofa. A modern customer will always prefer an insurer with such services. An insurer must focus on good customer experience. Anything a customer wants, the customer gets straightforwardly using technology.
Straightforward Beginners Guide to Insurance Business
Building an insurance business isn’t easy. However, you can turn your dream into a profitable business with proper focus and some sweat capital. Let’s explore easy steps to get you started.
1. Settle on the Kind of Insurance to Offer
Most insurance businesses will focus on one type of insurance for good reasons. However, a few companies offer different kinds of insurance policies simultaneously. Most insurers typically provide auto and home insurance under one roof and life and health insurance under another. That said, you should decide on the type of insurance you plan to sell first. Settling on the type of insurance you intend to offer will help you focus and specialize in your area of strength.
2. Create a Business Plan
A practical guide to insurance business setup must have a detailed business plan. Otherwise, you’re doomed to fail miserably. A sound business plan is a road map to success and keeps your business on track. The document can also serve as a commitment to your investors, insurance carriers, and other stakeholders.
A business plan will help you set goals, identify risks, avoid potential hurdles, and know your required financial resources. It’s your starting point and guidance for your business after the launch. The good news is that it’s flexible, and you can adjust it depending on your business goals. At a minimum, your business plan must analyze risks, identify suppliers, competitors, and target market, and have budget costs and expected financial cashflow. Generally, it’s your detailed guide to insurance business startup, and you can also use it to secure financing.
3. Find a Strategic Business Location
You must conduct thorough research before settling on a business location. Where do your target customers live? Can your customers locate your business premises easily? Will your customers spend a lot to find you?
Typically, the best locations to set up your business office are high-traffic areas, such as highly populated boulevards or city centers. Setting your offices in such areas increases your chances of getting clients for your business.
You’ll need ample space to accommodate your employees and a conference room with a big table to serve at least four people. Your new office must also have a large waiting room and a reception table. Without such amenities, you won’t have any success with your insurance business. It’s akin to selling pork in Mecca.
4. Choose Your Business Structure
Your guide to insurance business structure must dictate the amount of personal liability you’ll take on. Each business entity has unique risks and benefits. For instance, a sole proprietorship is a simple business structure with heavy personal liability. For this reason, your assets are at risk of auction to pay unsettled debts. On the other hand, corporations and limited liability companies (LLCs) legally separate you from the business. Although they’re more complex and expensive to start, they offer personal asset protection.
If you’re unsure about your business’s idea structure, working with an attorney to guide you through the incorporation process will be best. The aim is to ensure you structure your new startup depending on your needs.
5. Choose Your Business Name and Register It
The next step on your ‘guide to insurance business startup’ list is registering the business name. You’re done with the serious stuff; have fun with it.
If you’ve settled on sole proprietorship by default, the business takes your legal name. You can also decide on the ‘doing business as’ (DBA) name. Here, you must be very creative and choose a name that is easily searchable, resonates with your intended clients, meets your state’s requirements, is easy to spell, and meets your agency’s benefits. After settling on your business name, register it with your state. Typically, you’ll be charged a small fee for the name registration process.
6. Get a Tax ID Number
The Internal Revenue Service (IRS) requires partnerships and corporations to file taxes using a federal employer identification number (FEIN). Also, you’ll use FEIN to open your business account or credit card. In the case of a sole proprietorship, you’ll use your social security number for the same processes.
7. Register your Insurance Business with the State
To develop a proper guide to insurance business setup, ensure that every process aligns with your state’s rules and regulations to register it successfully. After acquiring your tax ID number, contact your state’s Insurance commissioner’s office. You must register your business as a ‘resident business entity’ for tax purposes. The state will charge you a small fee for the process. Also, they’ll provide you with a checklist to ensure you comply with all state requirements.
8. Get Your Business Permits and Licenses
You’ll require a business license to operate legally. Contact the relevant authority in your state to inquire about the licenses you need to run your business. Also, ensure you comply with your state’s business rules and regulations.
9. Get Insurance to Protect Your Investment
Your business insurance protection depends on its structure and assets. As an independent agent, you must know how important it is to have adequate coverage. However, it’s equally important to consider other risks as a business owner. Hence, you must ensure that your guide to insurance business startup includes a cover to protect your business from unforeseen perils.
If you intend to start an insurance business, you must develop a practical guide to insurance business startup. First, settle on the type of insurance you want to sell, create a business plan, and choose a business structure. However, starting an insurance business can feel like preparing for your worst subject’s physical exams. Luckily, with a little perseverance, this guide will get you started. Visit our website for more helpful information.