Q - How much commission do Insurance Agents make? How do I start an agency?
A - First things first, you'll need to get licensed in your state and other states you want to do business in(not too hard) you'll need appointment with good companies that sell marketable policies (a little harder) then they'll require you to sign a producers agreement (better look both ways before crossing that street).
Life policies usually pay between 30 and 100% of first year premium, so let's say a policy is $40 / month = $480/year then first year commission = $144 to $480. Some companies pay renewal commission but it's usually a smaller %.
P&C pays around 15% for new and renewal business. Some more, some less, others have smaller renewals, whatever, but let’s use 15% for computations. Then how much you make depends on how much premium you write. Say you write a medium sized trucking company for $2M / year then 15% = $300K/ year - a soft living. If you sell personal lines, and say average HO in your state = $600/year and average auto = $1,800/year then to get to $300K you'll need 833 1/3 customers paying and renewing every year. Since either of these clients is going to work you to death, you'll need to hire some help, pay for an office, buy supplies, marketing E&O insurance and so on..
After a few years in the biz, companies can pay other bonuses: profitability (keep your claims down) retention (keep your customers) and growth (keep them coming to us!!) this can add maybe another 5-10% commission to your bottom line.
Needless to say, unless your dad owns an established insurance agency, this won't be easy. You’ll work years and your success is not entirely in your hands, you’re partners with your insurance companies.
My advice: if you want to work in sales, find a more lucrative profession
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so lets say you hava an opportunity to pick up an independent agency (that uses a highly recognizable underwriter's name) that already has a book of business of approx 3500 mixed policies, would this be lucrative? Could you estimate?
The opportunity is intriguing; A large or profitable agency is going to come at a price. The million dollar question: is the price too high? Any agency undergoing change is going to experience some run-off of existing business. To estimate how much will run off I’d do analysis by first breaking down the book of business:
Personal lines vs. commercial lines and access to both.
Preferred market vs. standard or high risk and again access.
Any life& health, group life, disability: what kind with who and how stable
Consider what types of business you want to write and see how competitive you are in those markets.
Other factors to consider:
Loss histories
Profitability
Retention
After crunching numbers, an analysis of current agency management would be in order.
Since you’re stepping in to replace existing agents, how are you going to do?
Are you replacing the most popular guy in town or an agent who’s been semi-retired for the past 5 years?
Is the book looked after or has it been neglected? High maintenance or on auto-pilot?
Are the principal or sub-agents moving to positions where they will compete against you?
Are you able to fill the shoes or are the shoes too small and you can do better?
Is the agency what your looking to build or are you using the appointments to grow in a different direction?
Any agency undergoing change is going to experience some run-off of existing business. Is current management working with you or against you to keep your business walking out the door? Are CSRs and other key personnel staying? What is their incentive to stay? What is the cost to keep them? Are you on the hook for their health plan, pension, 401K, profit sharing?
Finally, unless you have a large bucket filled with cash you’re probably financing the agency purchase. What are the terms and expectations from the finance company. Is it straight financing or an Agency Purchase firm? What are their expectations for growth? If your first year is the worst you’ve ever had, will you survive or be bankrupt?
Lots to consider. Any other comments?
thanks for the response. It gives me a lot to think about.
"My advice: if you want to work in sales, find a more lucrative profession."
I own an independent agency and my renewal premium is approximately 6 million, generating over $1 Million in commission annually. Your points may have some validity, but there are not many sales jobs that I'm aware of that provide: A)RENEWALS, B)GROWTH OPPORTUNITY, C)BUSINESS CONTINUATION
Please point out a sales job that in your mind would be as or more rewarding. Many of my friends are in real estate and financing, and they are busting their hump non-stop to keep bringing in new clients while I work on my tan at the golf club.
Thanks for the comment; I always wonder when people claim to be large successful agency owners: if you're so large and profitable, why are you screwing around on the internet like us back office low-lifes?
While I'm happy for your success, unless your Dad left you an agency or you won your book in a poker game, how did you get so large?
Did you grow from policy zero? If so I'm guessing you've been in business for 20 years. Let us know, it would be an interesting blog posting.
Yes, I have been in business almost 20 years. However, I started as a scratch agent with nothing. Sorry to come across as rude on my post, but your advice on finding a better sales job irritated me.
Here is my advice on how to grow your agency quickly, and closely mirrors my own experiences.
1)Start at a captive company, but make sure it's one where you are salaried and not paid on a "loan." You'll learn the ins and outs of auto/home policies, and get good training on life/di/ltc sales.
2) Join NAIFA and be actively involved. Meet other successful agents and take some professional courses.
3) After you feel you have your feet solidly on the ground, start making the move to the independent world. Start your own agency, but don't pick a name like "John Smith Insurance Agency." Choose a name that you can create a brand around if you decide to get bigger or open franchise agencies.
4) Partner with an existing successful agency that has a good loss ratio and lots of carrier appointments. See if he will work out an arrangement to bring you on in return for a cut (10-15%). The agreement should call for his cut to reduce as your book grows. I had a breakpoint at $1 Mil, 2 Mil, etc... At $4 Million I could completely split on my own and owe him nothing. With enough good business on the books you'll have no problem getting your own appointments.
5) Hire agents underneath you to sell and CSR's to service clients.
How to get this big quick? Buy LOTS of leads when you start at the captive carrier. Most will co-op the cost of the leads or pay for them entirely. Keep these leads in your own database.
Once you are on the independent side, your odds of placing every piece of business you quote are around 9 out of 10. Work your existing leads as well as buy new ones. When you write new clients, make sure to send thank you's, BDay cards, Christmas, etc... and don't be afraid to ask for referrals. You should set a goal to get at least 1 referral out of every 2 new clients you write.
My average annual premium is about $1800 per year for auto/home, so to write $50,000 per month in new premium, you only need to write about one new client per day to hit that goal. You'll also pickup life and commercial opportunities along the way.
If you're working 8-10 hour days, you have 8-10 hours to find ONE PERSON to write. Not that difficult to avg 5-10 per week.
As you get bigger you should hire other agents that can use your agency name to write business. Offering them their own book at 15% cut like you had is a good starting point. Just be careful about who you hire.
I found this site accidentally the other day. The idea of finding a better sales job blows my mind and caused me to make a post.
Thanks again for the comment. If you have a minute, drop me a email at ernesto [at ] insuranceyak {dot} com , I'm considering an agency job and would value your input.
I am a Life & Health agent and am working with an independent agent. His agency does about $1.5 mil in premium and consists of personal lines and commercial. Our arrangement is 50/50 split on new business and renewals that I generate on my own or from within the agency. I am considering getting my P&C liscense and he said he will keep the 50/50 split arrangement for P&C business.
Your statement: "See if he will work out an arrangement to bring you on in return for a cut (10-15%). The agreement should call for his cut to reduce as your book grows. I had a breakpoint at $1 Mil, 2 Mil, etc... At $4 Million I could completely split on my own and owe him nothing." A few questions:
1. "10-15% cut" is this a commission split of 10-15% for him and 85%-90% for you on new and renewals?
2. At $4 million are you taking your entire $4 million book with you and setting up shop elsewhere?
Thank you.
Soory for the late post.
If the General Agent is offering you a 50/50 split it might not be too bad, depending on what's included. For instance, if you're not paying any office rent or expenses then it might not be too bad. HOWEVER, you'll have a tough time building a large business when you're only getting the same commission as most captive companies pay. I get between 15 and 25% commission on my policies. If you want to open your own agency, then you need a contract designed to eventually reduce your broker's cut and allows you to move off on your own and take your clients with.
1. For a 15% cut = $1,000 premium generates $150 in commission. Of that $150, I paid my broker 15%, or $22.50. That was on new and renewal business and any bonsues.
2. I had my own office from day 1 and around $3.5 million I transferred all my clients from his agency code to my own. I had every client sign an Agent of Record form when I wrote them and put it in a file so everything was ready to go when I pulled the trigger.
Here is the deal I offer new agents in my office.
Book Size Split
========================
$0-New 50/50 (no expenses)
100,000 25% + exp
250,000 20% + exp
500,000 15% + exp
1,000,000 10% + exp
2,000,000+ Negotiable
Franchise fee 5%
Depending on what their intentions are beyond that it's negotiable. (if they stay in my office or under my business name I give them free E&O and some other benefits included with their split)
Hope this helps.
Soory for the late post.
If the General Agent is offering you a 50/50 split it might not be too bad, depending on what's included. For instance, if you're not paying any office rent or expenses then it might not be too bad. HOWEVER, you'll have a tough time building a large business when you're only getting the same commission as most captive companies pay. I get between 15 and 25% commission on my policies. If you want to open your own agency, then you need a contract designed to eventually reduce your broker's cut and allows you to move off on your own and take your clients with.
1. For a 15% cut = $1,000 premium generates $150 in commission. Of that $150, I paid my broker 15%, or $22.50. That was on new and renewal business and any bonsues.
2. I had my own office from day 1 and around $3.5 million I transferred all my clients from his agency code to my own. I had every client sign an Agent of Record form when I wrote them and put it in a file so everything was ready to go when I pulled the trigger.
Here is the deal I offer new agents in my office.
Book Size Split
========================
$0-New 50/50 (no expenses)
100,000 25% + exp
250,000 20% + exp
500,000 15% + exp
1,000,000 10% + exp
2,000,000+ Negotiable
Franchise fee 5%
Depending on what their intentions are beyond that it's negotiable. (if they stay in my office or under my business name I give them free E&O and some other benefits included with their split)
Hope this helps.
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