Start up Agency Advice

[gregm21]

I currently own a driving school where I have about 10,000-15,000 students coming through per year and looking into the option of opening up an independent agency in our current location so that I can take advantage of some great cross selling opportunities. I have researched the laws in my state and there aren't any regulations against this. I have 1 year of successful production in P&C with an Allstate office, and concurrently servicing existing policies. I also have 2 years of financial advising experience. I have plenty of unused office space in my current location, so I would have no rent expenses. I also have a lot of business connections that could work well for selling commercial policies, which I have little experience selling. I would plan on hiring an experienced commercial/auto producer.

1. Is it unrealistic to think that an Alliance/Group/Wholesaler would take on this type of risk?

2. In my past experience we wrote mostly preferred clients, would it be an issue to be writing large volumes of high risk auto policies.

3. Would it make more sense to try and find an area independent agent to work underneath?

4. Any comments/advice would be greatly appreciated.

Thanks,
Greg

[AgencyEquity]

Who is your driving school market, are they 16 year olds?

[gregm21]

Of the total students coming through the school I would estimate:
Approx 85% would be new drivers
- 75% 16 yrs old
- 20% 18-21 yrd old
- 5% 21+
Approx 15% would be drivers that are attending driving improvement courses, due to accidents/tickets/etc...

[justthere]

What state are you in?

Also, I would think that you would be better off partnering with an existing agency who has the appointments that you need. Your clientele base points toward a substandard carrier. It may be better for you to split commissions and let somebody else do it.

[AgencyEquity]

Of the total students coming through the school I would estimate:
Approx 85% would be new drivers
- 75% 16 yrs old
- 20% 18-21 yrd old
- 5% 21+
Approx 15% would be drivers that are attending driving improvement courses, due to accidents/tickets/etc...

Greg,
You really don't have a great market in terms of Insurance. First of all, the 16 years olds will not get insurance from you, they will be added to their parents preferred policy, let alone a 16 year old really cannot enter into a contract. The 18 to 21 year olds will probably go online to find insurance. I have no doubt you will get some clients, I don't think you will capture very many, also this is just about the worst type of insurance you can go after. You will not make much per hour of work, you probably will not have a lot of loyalty either. The best time to insure someone is after they get married, before that they are a temporary short term and difficult client. Lastly, do you want to risk the reputation of your driving school due to some insurance related issues that goes wrong, let alone it will not be a huge profit center for you?

[golongd]

I agree with AgencyEquity. Making a living selling high risk insurance is a tough road. I do however like the commercial sales idea. Find something like this in your area http://www.miaainsurance.com an alliance like this would be able to help you get easier access to commerical contracts.

Best of Luck!

[gregm21]

Guys, Thanks for the great advice. Our driving school is also in the process of starting up CDL classes which could be another great source for the commercial side. I've written a few policies for independent operators in the past, but nothing on recently licensed operators, are they tough to place?

[CRB]

You should also check out Consolidated Agency Partners (http://www.cap-1.com), might be another good option to gain access to markets.

[gregm21]

I've been trying to run through the information on these clusters, so much out there and lots of out of date information on the forums when you search.

Was trying to find out if anyone is using Smart Choice and how their selection of Commercial carriers is, as their website doesn't go into much detail?

Do they have an instant quoting tool?

I would like the ability to bind policies for P&C, so if Smart Choice does not have a good commercial selection, are you able to join more than one cluster, assuming you can afford it?

[FFA]

When I was making the jump from Captive to Independant, my direct appointments told me to stay away from Clusters. One bad agent can spoil it for the entire cluster. If your going on your own, go on your own. Just my opinion.

[AgencyEquity]

When I was making the jump from Captive to Independant, my direct appointments told me to stay away from Clusters. One bad agent can spoil it for the entire cluster. If your going on your own, go on your own. Just my opinion.

Cluster groups for the most part do a great job managing their agencies and their loss ratios, because if they don't, they can lose their appointment or ability to get profit sharing. The groups that underwrite their agencies before approving them for membership and having high standards are the better groups to join, however you must also meet those standards. Start-up agencies will not have an easy time to get appointments, they may get one or two quality preferred appointments, but probably not much more. Also some think there is some sort of a stigma in getting appointmens through a cluster group. Keep in mind there are 10 million dollar agencies that are in cluster groupos. Also members of clusters have their agency names on their dec page, at least the case with most groups now. Lastly, those in cluster groups make more, becuase they get better negotiated commisions and profit sharing they would not otherwise get on their own. Cluster groups are not for all agencies, agencies that focus only on non-standard auto do not need a cluster group, cluster are more so for agencies that focus on preferred business.

[mattnewtonberger]

a company rep is going to not like cluster because any rating tool makes their company stay on their toes with rates to keep getting new business. always think about motives with advice given

[AgencyEquity]

a company rep is going to not like cluster because any rating tool makes their company stay on their toes with rates to keep getting new business. always think about motives with advice given

Carriers do not have to appoint cluster groups, but they the do and the reason they do is because it makes business sense for them. As previosly mentioned, cluster groups attacts carriers because of loss ratio management and the ability to have a block of agencies by the stroke of pen. I have not seen your argument made by anyone in the industry, the bigger issue is production and that all appointed agencies are giving a certain amount of production. From what I understand, some carriers are continuing to keep the cluster group appointed, but are pulling appointments from certain agencies in the group. It is my understanding that this is a few carriers and is not widespread. These groups have clout, especially the well managed groups who deliver results to their carriers they represent.