Recession Provides Fuel for Agency Start-ups

By Tony Caldwell | September 7, 2020

Starting an independent insurance agency, or any business, is a risky proposition. You’re moving from a secure position with a regular income and foreseeable future to a place where uncertainty is the new normal. Some may think that’s truer than ever today, given the economic fallout from COVID-19.

I see it quite differently. For those with the preparation, mindset and courage to move forward with their dream, this may be the best time in history to start an independent agency.

Why? History has shown that recessions and economic turmoil present significant opportunities for new business start-ups. In the insurance industry today, you’ll find three conditions that provide fertile ground for the entrepreneur willing to take the risk — as well as for existing agencies to adapt and thrive.

Greater Growth Opportunities

First, there are increased opportunities for business growth. With massive unemployment and a contracting economy, everyone is trying to reduce expenses. That means almost every insurance policy in the country may be up for grabs. Existing insurance agencies are focusing time and attention on playing defense, and history shows that many will not do what it takes.

Agencies also find it easier to get appointed during a recession when carriers, which are facing top-line declines, tend to moderate price increases to retain business and market share. New agencies can get access to the products they want to sell.

Finally, hard markets always present great opportunities for new agencies. We entered 2020 with hardening in commercial property and continuing hardening in commercial and personal auto, and COVID-19 has reduced availability and increased prices along some lines and in some markets.

Lower Costs

The second condition conducive to new start-ups is lower costs, and costs tend to drop in a recession. Commercial vacancies rise and office space and real estate become cheaper, equipment drops in price and becomes more readily available. Virtually everything a new business needs to get started is dropping in price, including talent.

New technologies being embraced during COVID-19 are also lowering operating expenses, while increasing speed and efficiency. This is a great combination for new agents, who can create their business from the ground up with this technology and get a leg up in the marketplace against incumbents.

Remote technologies like Zoom are also valuable for prospecting, selling and building relationships and offer lower-cost opportunities for a new agency to dramatically expand its market — selling and servicing insurance anywhere. This is a trend existing agencies should also embrace.

Increased Talent Pool

Finally, higher unemployment gives savvy entrepreneurs greater opportunities to hire talented people, often with creative or lower compensation. In the current environment, this talent may also view start-ups as more attractive — especially those that create work environments with the technology, mentoring and flexible work policies that young employees want today.

While recessions always grow the talent pool, our current economic situation is unique because the same technology that is now widely adopted for prospecting and selling (Zoom, etc.) can be used to recruit and manage employees located anywhere. This is a big opportunity for new agencies, particularly those located in remote areas with a small employment base.

A Unique Confluence

Some of the conditions described above are typically available during any recession; some are unique to the current environment. I see them combining to create incredible and unique opportunities for a start-up agency. That’s why I believe the next several years are truly the best time in our history to create a new independent insurance agency.

For existing agencies, it’s time to take notice of these same conditions and adapt their operations so they can stay competitive with a new crop of start-ups.

About Tony Caldwell

Caldwell is an author, speaker and CEO of One Agents Alliance, an alliance of 185 independent insurance agents in Oklahoma, Arkansas, Kansas and California.

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Insurance Journal West September 7, 2020
September 7, 2020
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