Insurance Agency Owner – Mentor, Phil Maloney
This mentor has operated his own insurance agency for over forty years. During that time he has steadily expanded his agency’s customer base by adding additional lines of insurance products as well as acquiring other insurance agencies. In his article, he discusses how the insurance business has evolved since he first started in 1972 and how he has successfully found ways to deal with the increased competition an insurance agency like his faces from national companies with large advertising budgets many of which are now trying to bypass agencies by selling over the internet. This article should be of interest to anyone considering becoming an insurance agent or starting an independent insurance agency or any other kind of business that require good communication skills.
I developed a strong work ethic early in my life. I began my first job when I was 12 working at a dry cleaner after school and in the summer sweeping the store. When I turned 15, I was able to find a better job at an office furniture company unloading rail cars and moving the furniture to their warehouse. I worked for that company after school every day and during the summer. I was first paid 72 cents per hour, which back then seemed like a lot of money. This was a job that I kept though high school and in the summer months while I attended college at Oklahoma State University. When I graduated from college, I became the office furniture company’s showroom sales manager. One day while I was working in the showroom, I met a man who thought I had sales talent and encouraged me to go into the insurance business. He told me I could make more money and showed me how to get started.
My agency first handled auto and home insurance. In order to build my initial customer base, I went out and knocked on the doors of people who according to their general warranty deeds that I reviewed at the court house were about 45 days from needing to renew their homeowner’s insurance. Back then you could also go through the phone book and make cold calls, something that is not productive today with so many people on do not call lists. But as my customer base grew, I was able to get more and more new business from referrals. This is now the primary source of my agency’s new business.
I also expanded the agency’s insurance lines to include commercial insurance like health and retirement packages that are part of many employee benefit programs. The businesses we handle have anywhere from five to five hundred employees. I have one agent that specializes in selling this kind of insurance. He also provides good personal service by doing things like helping employees file claims and reviewing their explanations of benefits (EOBs) when they have questions.
I have also expanded my agency by acquiring three other insurance agencies and their books of business. Acquisitions were an expansion option for me because I already had a customer base. This allowed me to apply all the money generated from the acquired business to pay back any money I borrowed to make the acquisition. I did not need the revenue from the acquisition to pay my basic expenses.
I have seen the insurance business change the past several years with large companies doing a lot of advertising and trying to sell on the basis of price. We try to counter this by explaining to people the details of what is in these policies so they understand what they are actually buying. Because we choose to sell what we consider good insurance that is also a good value, we are never going to be the cheapest, but we are not going to be the most expensive either.
Operating an Insurance Agency
One of the keys to running a successful agency is to retain customers once they purchase insurance from you. One way we do this is by trying to provide exceptional personal service. For example, if one of our customers turns in a claim for home or auto it must go through an adjuster. We do personal follow ups in two to four days to make sure our clients are happy with the way their adjustor is handling their claims. For health insurance that is part of a company’s benefit package, we help employees file claims and review with them their explanation of benefits (EOBs) provided by the insurance company to the employee after their claim is processed. Also there are many new requirements in the Affordable Health Care Act for employers offering a health insurance benefit for their employees that are difficult to interpret. If the employer’s benefits would be found to not be in compliance with the new law, it could result in an expensive legal issue for the employer. This uncertainty has caused fear among companies offering health insurance as a benefit for their employees. We spend a lot of time working with these businesses explaining how the law affects them and how to administer their employee health care benefit programs to best stay in compliance with the requirements of the new law.
To run a successful agency, you also have to be able to manage people. One of the most important things you need to do is listen to your employees and stay in touch with their personal situations. Everyone has different life experiences. To accommodate a particular individual often means that you have to be flexible. For example, I have a mother who works for me that has a child who is special needs. I let her take off on Wednesdays so that she can take her son to see doctors and receive medical treatment. I also stagger the time when people start in the morning so people who need to have time to get their kids to school or handle other matters can take care their personal responsibilities.
I also feel that it is important to keep your best people if you want to stabilize your customer base. You generally retain customers who establish personal relationships with you and your staff and know they can call you if they have a problem with a claim or need to make changes to their policies. To retain good people, you have to pay well. I feel that I pay higher salaries than most other agencies and offer a competitive benefits package. This has allowed me to keep personnel turnover low, retain good people and in turn maintain a stable customer base.
How to Prepare
- I am a college graduate like most insurance agency owners. I would recommend a degree in business communication over a business degree in marketing to prepare you for the insurance business. In my opinion, good communication is the biggest key to success in this business.
- You will need to be licensed to sell insurance. Besides the basic State insurance sales license, you also will need security licenses much like a stockbroker if you want to sell certain kinds of financial products like annuities and mutual funds. It will be helpful to take some classes in economics and finance in college to help you understand these products.
- You will increase you chances for success by getting experience before you start your own agency. I would suggest that everyone considering owning an agency work for someone else as an agent for a few years to learn the business and see if it fits your personality.
- To open your own agency takes an investment of $25,000 to $50,000 when you sign a lease for office space, get signage and take out adds in print and on the internet. Leases generally are for a minimum of three years for a basic office build out and five years if the build out is more expensive.
- Try to have your personal finances in order and not have a lot of debt or monthly obligations when you start. You should expect in the first few years that your income is going to fluctuate until you build a stable book of business. If you are leaving a job where you had a regular paycheck to cover things like a large mortgage or car payments, these kinds of reoccurring expenses could put a lot of financial strain on you the first few years before you develop a stable customer base.
- You have to be willing to work hard especially when you are getting started. When I opened my agency, I got to work at 7:30 and stayed until 5 or later. While I now have good employees who handle some of the work I used to do, it took me several years to build up my organization before I was able to take more time for myself.
- Running any insurance agency means you have to be able to respond to the competition. Besides other local agencies, there are now large, national companies that market directly over the Internet and bypass agencies altogether.
- Understand that opening an insurance agency has the same risks as starting any other business. There are not any good statistics on insurance agency failure rates. But according to the U.S. Small Business Administration, 70 percent of all types new businesses survive two years. That drops to 50 percent by the five-year mark and 33 percent at the 10-year point, with just 25 percent lasting 15 years or more. Because starting any business is risky, do detailed planning and preparation to give you the best chance to succeed.
- All successful agents I know are resilient and can handle rejection. You are going to talk to a lot of people who are not going to buy a policy from you. Plus the insurance business follows the general business cycle. You need to be resilient to work through these inevitable slow periods in the economy that will affect your agency’s business.
I have operated my own insurance agency for over forty years. During that time I have been able to grow my agency and find ways to successfully compete in a market that has grown more competitive. I believe that people are always going to want and need the kind of personal service an agency like mine can provide. Insurance agencies are like most businesses that are affected by the ups and downs of the business cycle. But for people who have a strong work ethic, are good communicators with their customers and employees and have resilient personalities, there should always be opportunities in the insurance business.
US Bureau of Labor Statistics for Insurance Sales Agents
The median annual wage for insurance sales agents was $48,150 in May 2012. The median wage is the wage at which half the workers in an occupation earned more than that amount and half earned less. The lowest 10 percent earned less than $26,120 and the top 10 percent earned more than $116,940.
Many independent agents are paid only by commission. Sales workers who are employees of an agency or an insurance carrier may also be paid in one of three ways: salary only, salary plus commission, or salary plus bonus. But in general, commissions are the most common form of compensation, especially for experienced agents. The amount of the commission depends on the type and amount of insurance sold, and whether the transaction is a new policy or a renewal. When agents meet their sales goals or when an agency meets its profit goals, agents usually get bonuses. Some agents involved with financial planning receive a fee for their services rather than a commission.
US Bureau of Labor Projected Demand for Agents
Prospects for insurance agents are closely tied to the growth of the broader economy, so the slow but steady recovery from the recession is providing improved job opportunities and stability for professionals in this industry. The Bureau of Labor Statistics projects insurance-agent employment growth of 10.4 percent between 2012 and 2022. That’s an additional 45,900 jobs that should open up before the end of that period.
US New and World Report took a survey in 2015 and found that being an insurance agent was ranked 33rd for job satisfaction out of the 100 professional job categories they studied.