So You Want to Start an Independent Insurance Agency?
About this episode
March 20, 2020
Starting an agency from scratch can be difficult and complex but not impossible, and the pros certainly outweigh the cons. If this is your first entrepreneurial venture, be prepared for many roadblocks along the way. In this episode of the GEEK FREAKS PODCAST, we put Tara Smith, Principal at Birchfield Independent Insurance Agency on the Insurance Hot Seat to talk about her experience starting her own insurance agency, and the benefits of being an independent agent in a captive world.
Tara Smith | Principal
134 W University Dr #206
Rochester, MI 48307
Phone: (248) 601-3000
Fax: (248) 601-3003
Email: tara.birchfieldins@gmail.com
Website: www.birchfieldins.com
THIS WEEK ON THE HOT SEAT
RON HARRIS
VICE PRESIDENT AT OMEGA COMPUTER SERVICES
- 15 years in the industry.
- Enjoys spending time with his family, riding his Harley, and finding time to sleep.
- Fun fact: Ron broke both of his arms.
- He's a simple person, enjoys work, but also enjoys being alone reading a book or learning something new. Loves candy DOTs!
TARA SMITH
PRINCIPAL AT BIRCHFIELD INDEPENDENT INSURANCE AGENCY
Specializing in putting together comprehensive insurance programs for small business owners. Also, customizing personal insurance plans for individuals and families from the most competitive insurance carriers in the industry.
VIEW TRANSCRIPT >
Episode 22 Transcript
Ron: (00:00) Welcome to the Insurance Hot Seat, a special series by the Geek Freaks Podcast dedicated to answering the tough questions in the insurance industry.
Music: (00:07) [Intro Music]
Ron: (00:21) On today's podcast. I'd like to welcome Tara Smith of the Birchfield Independent Insurance Agency. How are you today Tara?
Tara: (00:29) Hey Ron. Good. How are you?
Ron: (00:30) Good. Thanks for joining us today.
Tara: (00:32) Thanks for having me.
Ron: (00:32) Um, no, no, I appreciate the time. So the topic today is going to be, uh, something that you're very close to, how to start an independent agency and I guess do's and don'ts or what you learned on this journey.
Tara: (00:47) Yeah, it's kind of, it's like, it's an exciting thing for people that are thinking about doing it because I feel like everybody really wants to, um, kind of a dream for a lot of people, especially if they're working as like just producers for any agency and they kind of want to get started on their own or if they started in the captive world, like working for, um, um, like a captive agency, like a State Farm or Farmers or Farm Bureau and you know, are thinking about going to the independent side.
Ron: (01:13) So when you make, when you make that leap, when you made that leap, was it just of your own volition like, Hey, I'm ready to do this on my own. It seems like it's a scary thing to do because most of these captive agencies pretty cushy. You're getting your leads, your...
Tara: (01:30) Well, it's definitely easier. Yeah, it's definitely easier to start. I feel like the kind of corporate captive world gives you a lot more support. Um, when you're starting, especially if you're brand new to the industry, usually they set you up with like a nice co-op. They kind of sometimes will, um, pay your rent for awhile. And if you really generous, um, starting commission, like, I mean I've heard things of up to 300%, um, like a standard good commission rate. Generally speaking in the independent world is 15% of whatever your written premium. So when you talk about like 100%, 300%, that's huge numbers, but that's only for like a certain period of time. Like, you know, maybe your first three years in business, but it really is helpful when you first start. Um, and on the independent side, it's really not like that. You're much more on your own.
Ron: (02:21) So when you went, so when you go independent, you either have to have the overhead of having a location, you have to have the overhead tools...
Tara: (02:29) Right. I would say when you're starting, when I started anyway, I started in 2008, my dad was an insurance agent, a captive insurance agent actually for his whole career. So I worked for him, um, you know, like all through school and, um, you know, when I was in my early twenties, just kind of starting out in the working world, so I learned a lot from him. Um, but I learned the captive world really well. And um, in 2008 actually had, so he decided that it was time for him to retire. And, um, again, it's sort of like in the captive world, I didn't have, when you're in the captive world, we really don't have ownership of your book of business. It's the company's business. So that's one of the reasons why people really like the idea of going independent because generally you have much more ownership of your business. You're much more in control. Um, so I could not buy my dad's book of business. I couldn't just take over, you know, the book of business that I had worked for all those years. So that's when I said, well, now probably is a good time to look at, you know, opening my own agency and independent, independent of any corporate company and kind of be my own, my own thing.
Ron: (03:41) Now when you, if you stay in that community, so you can't, I imagine there's non-competes, all that good stuff, but you can be, if you stay in the community that that is good because they still know you and they still know your name and maybe they still come to you because of the relationship. Isn't that necessarily with the agency but with you?
Tara: (03:59) Right. Um, yes, there is an element of that, but one of my points actually was going to talk about how when you're captive and when you're thinking about going independent or even if you're a producer working for somebody and you have a dream of going independent, you want to have your own agency. Um, one thing to be mindful of is that the book of business or the clientele that you have with the captive carrier, like with your AAA or State Farm or you know, whatever, Allstate whatever agency, um, you know, whatever company that you represent does not necessarily mean that, that book of business is going to be a great fit for the independent markets. The company has kind of all wants different things. Um, and a lot of times, you know, it's like always that you have to be realistic with yourself. Like the grass is always going to be greener and I'm going to be making so much more money. That's not necessarily the case, especially when you start. Um, I would say that there's a percentage that you can definitely rewrite over to the independent agency that you decided to start. But even before you do that, like once you first start, once you first say, okay, I'm going to start this agency, this is what I want to do. Um, you have to look at how you're actually going to do that. So, um, let's say that you were a producer and you have a clientele or a book of business that you can work with. Number one, you're always going to have a noncompete of some nature. Generally speaking, it'll be a year. Um, I think that it's harder to enforce those longer ones. You may have signed something for three years, but I think that it's really hard to enforce that, but that's a whole different topic. But just think, okay, you're not going to be able to probably put that because there's a for a year or what do you do? You know, like how do you get numbers on the board? How do you get books? Um, you know, business on the books, you know, so you have to think about, okay, am I going to just go after direct appointments myself, which is very, very difficult to do. So you can contact, you know, different independent carriers and say, Hey, I'm starting a scratch agency will you give me an appointment? You know, will you give me the opportunity to business in the past? And historically, I mean, within the past 10 years, it's been very, very difficult to do that. Companies will not just appoint you because you're starting and you have this dream, you know, it's a great thought, but it's really unrealistic. So you have to look at, okay, what markets am I going to have? The other thing that you can do is you can join, um, like an aggregator or a cluster group, which is sometimes they're referred to as cluster groups. And that's basically like you joined the maps or agency, there's fees involved with it. Um, everyone kind of has their own set of startup fees and then commission splits. So, for example, um, you join like a cluster group and they will give you access to a certain number of markets. So you have then the ability to write business through these markets that they're giving you access to. Um, you know, it's not free, so you split your commission in some fashion, whether it's, you know, 70/30, 80/20, 90/10 it just totally depends on what their guidelines are, but that gives you an opportunity to start writing business right away without having to go out and like beat the streets for your own appointments yourself, if that makes sense. You're on contract. So that's one way to do it. There's no perfect situation. There's no perfect. Um, you're never going to get everything you want. You're never going to get the perfect situation. You know, you have to be prepared that you're going to have to make concessions and sort of look at the entire picture. Um, but that, I think for me, that's how I did it. I joined an aggregator, which gave me access to some really good personal and commercial lines market here in Michigan that gave me the ability to kind of start writing business and kind of solidifying, get going and grow from there.
Ron: (07:37) What year did you start? Did you go out on your own?
Tara: (07:40) So I started the whole process in 2008 and I would say that I was like fully operational and going really hard at it by 2010, I did a slower kind of transition because I was still working with my dad, um, and helping him kind of get his stuff set up for retirement. And then I kind of did my, I was fully operational by 2010.
Ron: (08:01) Yeah, isn't it? It's crazy. It's just kind of the same thing that we did here at Omega. So we, we joined forces in, uh, this is my 11th year, so 2000 and something. And uh, it took us 24 months to really finally get a product off the ground. So it's always the, and I think a lot of, a lot of people look at it like you said, like, okay, it's not, it's not a new adventure. They get pie-eyed. The grass is greener type situation and you're like, Oh no, strap in buddy. It's going to be, it's a wild ride.
Tara: (08:31) Exactly. I know. And that's another thing, like you have to be prepared for your first step. Most agencies fail within the first, statistically the first three years because those are the hardest. You're not bringing in the money maybe that you're used to bringing in. Like every policy, you know, I remember, I remember the first policy that I wrote, you know, like the client I remember cause it was so meaningful because every one matters. Every single one you lose, you know about, you feel it. It's very dramatic. And it's like you have to be in a position financially to know, okay, like this is not going to be a great, you know, this is not going to be a great windfall. It's not, it's not a steady thing. It's very bumpy, you know, at first. So you have to be really prepared for that.
Ron: (09:17) So after you get, you get with your aggregator, your cluster group, you're going down the road, what does the, what does the next iteration look like for you?
Tara: (09:26) Well, it kind of depends on the focus of how, what focus you want your agency to have. So, um, a lot of people say it's really great to have like a niche market. So, um, when you first start, you know, you want to have a market, this is one way, one idea, but you want to have a market or a stream of clients that you're really good on. Like for example, something that I do a lot of is contractors, like artisans, contractors, smaller artisan contractors, HVAC, plumbing, some electrical, painting, dry wall, those type of occupations. So when I started, I had several really good small commercial market targeted to those kind of, um, businesses. So, um, that gave me kind of a starting point where I could kind of call around and started getting referrals from people or businesses that I had written. Um, you know, that had similar, you know, like friends or associates or colleagues that were in the same business. So niche marketing is something that a lot of agencies have success with. I had success with it. Um, and that's, that's a way to kind of get business on the books and then also like, um, a lot of people are doing like the Facebook advertising and the SEO stuff and that helps just to get volume, um, in the door, you know, like people calling and then a third way and then a certain portion of those yield, right. And then off of that you really want to, I anyway, think that you really need to make a strong effort to um, um, ask for referrals. Like a lot of people for some reason are scared to say who, who do you know, like, do you have family that I can call this looking to save money on their insurance? Or do you have, do you know other business owners that do the same thing? And we can call them and reach out and see if we can save them money? You have to be really proactive about asking for referrals because so much of my business is built on that I think. And I think that that more so is more so important on the independent side because it's all word of mouth and you don't have that big brand power like that State Farm or that Farmer's know you're not Birchfield Insurance is not having commercials on the TV.
Ron: (11:28) Yeah, you're not having a Superbowl commercial.
Tara: (11:31) Right. So people are, you know, I'm not visible out there like um, but I've done a really good job is branding myself as an independent insurance agency. So people are looking for independent insurance agents in my area. I do come up really well on Google because you have to go with that. You'd have to differentiate yourself from just good prices on auto or good prices on whatever. You know, you have to sort of go with build on what you have and really be proactive about asking for those referrals.
Ron: (11:58) Okay. So to sum it up, it's, it's more of knowing your market and knowing your target market. Right. And kind of being the, it's such a term that's overused, but like a trusted advisor, right to, I mean, I know it's very overused.
Tara: (12:17) It is, but I know what you're saying. Yeah. You want to really make yourself a little bit different and um, and people now are really, especially with like the reform here in Michigan, um, that's happening. People are really more focused on like, you know, sort of individual attention and, and somebody that's independent that's not necessarily just working for one company. So I feel like there's opportunity to brand yourself as that instead of, um, you know, like how the, how the captive companies are just so, you know, behind their own brand, like State Farm or, or what you, AAA, whatever, they're there, they push that brand instead of like pushing me and myself, Tara Smith, you know, like, let me help you.
Ron: (12:56) Yeah. No, and I think that's important because you're, you're, you're selling based on relationship and rapport versus, um, you know, a branding like, oh, I saw your commercial and I can, maybe you can save 30% on my car insurance. So I'm going to talk to you.
Tara: (13:10) if I can just touch on one other thing that I think is important for people that are starting. So when you, if you're starting an agency or looking at a certain agency, you have to really think about the future and think about what your exit strategy is or perpetuation agreement. So a lot of these aggregators, when you're looking at them, obviously you're not thinking about, you know, retiring or selling or what you're going to do in 20 or 30 years. But it's important to look at the exit strategy and read your contract with those aggregators because a lot of them have first right of refusal. If you want to sell the book, you can't just take it to anybody. You have to get to get to them first. Or if you do want to sell it outside of the group or the cluster group or the aggregator, there's big fees involved in that. That's really important to make sure that you know what you're getting into.
Ron: (13:55) Is that something that you can negotiate on the, on the signup side, or is it just these are the rules?
Tara: (14:00) Um, I mean, I think everything is negotiable until it's not, you know, so I think that, um, ask for everything and you might get some of it, you know, it just depends. So there were things that I definitely did negotiate in my contract that I thought were more favorable for myself or, I mean, there were definitely reasons behind it, but yeah, I would say, um, yes, try to negotiate everything. You know, you definitely won't get it all, but you know, you might get some things.
Ron: (14:29) No. And it's like you said, to ask for everything and be grateful and thankful for what you get because you're not going to get it all.
Tara: (14:37) Right. You got to try. You know?
Ron: (14:39) So if you were, I mean, if you had to kind of sum up your adventure in, I mean, you've been doing it very well, but like what a word of advice or like, hey, you know, wear a helmet because it's gonna get rough, whatever is, you know, you've gotten to a point where you're fairly, you know, you're successful in what you do and you've, I don't want to say you made it to the top, but you're making it to where you want to go. What can you, you know, give to somebody that's sitting in their State Farm cubicle right now. Maybe listening to this podcast being like, I want to do this. What is my next move? So what, what advice can you give them?
Tara: (15:16) I would say just you have to have a lot of patience and you have to really, um, be ready to I don't want to sound negative, but be ready to weather the storm and don't give up. You know, this is a business that you constantly have to recommit yourself to all the time. You know, it could be you lose a big account and you'll just be devastated because, you know, I don't know, maybe there's some people that don't take it personally, I take everything personally to a fault.
Ron: (15:40) Yeah.
Tara: (15:42) Even though you know I shouldn't. You know? But I would say just don't give up. Like you have to just really, if you're, if this is your dream and this is really what you think you want to do there's going to be big. If it's a big time commitment, money commitment, you know, and you're not necessarily going to get your return, but I promise you at the end of the day, it is worth it. It is the best avenue to sell insurance if you want to be on the sales side is the independent side, in my opinion. You know, the money is the best. The support is the best. You know, you have so much freedom. Um,
Ron: (16:14) I was going to say, you got a lot of, you get a lot of like soft benefits of that too. You're working your tail off, but if you've got gotta make a soccer game at four o'clock you can certainly make a soccer game.
Tara: (16:23) You can. Right, exactly. Yeah. There's lots of, in my opinion, the pros definitely outweigh the cons and you know, as long as you can be committed to your, the business and you know, just really be steadfast and what you're doing and believe in yourself and have a good business plan is so important to you, you will be successful.
Ron: (16:44) No, I think that's great. I think that's solid advice. I like, I like the, the, I know you touched on it and it's not negative. It's the truth, right? Is everybody, when you make these career changes in these giant leaps, it's scary and it's going to be scarier and you're going to the monster behind the door that you think is there is probably there and he's probably a little bit meaner than you think, but like anything else, you'll get through it. It's incredibly hard to be an entrepreneur and take that risk on yourself.
Tara: (17:14) It is, but it's really, I mean it's really worth it I think. And just thinking about like I remember, you know, the, all of the different, I mean the hoop that you had to jump through when you were um, you know, working on the captive side that you really, I mean they really want to treat you like an employee, but you get none of the benefits. I mean, you know, you still, you still don't get any paid time off or health insurance or anything like that. You know, you're still, you're still working like crazy and constantly and you just don't, I just feel like on the independent side. You get so much more benefit and so much more freedom and you're really much more in control of own destiny as far as you know, your vision and what you see, ]
Ron: (17:54) And speaking of vision, cause that was going to be my next question. What do you see in the future for Birchfield and what you want to do?
Tara: (18:03) Right. Well, um, you know, that's a great question.
Ron: (18:09) You don't have to give me all the secrets. Is it, is it, is it a brick and mortar?
Tara: (18:14) I think I would eventually want to, I mean, ideally I think everybody wants to work less and you know, I can see like I would eventually like to think about hiring producers or a producer and maybe a CSR. Right now I'm doing everything myself, my sales and my servicing. So I would love to have a little bit more freedom, um, as I get older and do more things outside of the office. Um, but I think that we're in a great right now with technology. We're in a great position to be able to be really mobile. So I feel like that's a good plan. I would like to get producers and I would like to grow, um, on a level that's larger and kind of branch out a little bit more with producers. And I would really like to write more commercial insurance. I mean, right now my book is probably a 60/40 split in favor of personal lines. And I feel like with all of the changes that we've had, in the personal lines market here in Michigan. I feel like, um, commercial line is a little bit labor intensive and I enjoy it more now. Um, so I feel like I would like to transition to be at least I like to flip flop that I like to be 60% commercial lines, 40% personal lines. I'd like to grow my commercial line segments.
Ron: (19:26) Nice. No that's awesome. And it, I think success is always varied in everybody's mind, right? So success to me at one point was I would just love to have another employee to help me. There were 15 of us, 16 of us now. And you know, I never thought, no. And it's, it's, it's crazy. And I still don't feel the, the bad thing about being an entrepreneurs, you never feel successful. You never feel like you got to the top. You can't let that stare you down either. Right? So you have to stand there and say, I did this. Like, yes. And the biggest thing that we don't ever do, because we're constantly looking at the horizon and looking at the next challenge is not living in the moment of saying, we did this. So if you make that leap out of the cube in, into freedom necessarily, that is a victory in its own and should be recognized as one, right. It's not, it's not success to everybody can be very different and it's great to hear that you have such a clear vision in what you want. Because a lot of times when I talk to entrepreneurs, they're just like, well I want to, I want to make more money. Well how are we going to make more money? What does that look like? 100%. We all, if you ask anybody, anybody, you've not even an entrepreneur, what do you want to own? Make more money. Um, cause I'm a tech guy. What do you, do you have any, what are you using if you don't mind sharing, like agency management software or are you just...
Tara: (20:51) Yup, we do have an agency management program. Um, I'm constantly reevaluating that because I feel like I don't get as much as I should out of my agency management system. But I mean, um, really as far as that goes, I mean there's expenses related to that, but I mean most of the carrier, um, rating are all web based. So really you just need a good computer. Um, and yes, I would say a management system is a requirement. It's really helpful in tracking, um, like activities with client conversation, different events that come up, changes that you make, you know, documentation is so important, um, with everything that we do. So I do use that. Um, I do, you know, um, a lot of communication by email and texting now, there's lots of different software programs for texting with clients that will sync up with your management system so that you can have a record of those texts because that again, is only important. Um, and that's pretty much it. I mean, it's really like, it's not that, you know, um, um,
Ron: (21:55) It's not too tech heavy. I mean, essentially you have a laptop that turns on and a few tools...
Tara: (22:02) Exactly, right. I just need my scanner, and you know, my cell phone and you're good. Yeah.
Ron: (22:06) And I think it's important to it to kind of put out there too is if you're looking to make this jump, you don't need to go into the AMS's or the Tams of the world. Plenty of options, cost effective, easy to use.
Tara: (22:20) There really are, especially when you're just starting. Um, there's a lot of really small, nice, um, agency management systems. Again, I don't think there's a perfect one, but I do think that there are a lot of options for agents that are just starting out that don't need, right. Like the huge, because those can get very expensive and intimidating and honestly you just don't need it, they are for very large agencies. They have a lot of producers that are doing a lot of accounting because they're paying all these producers, but you just need something that's a little bit more basic that's going to help you streamline your workflows and really just keep track of what you're doing in an organized fashion, which there are a lot of great options now. A lot EZLynx. Um, HawkSoft um, um, QQ Catalyst. Some people really like. So it's just a matter of finding the right one that fits your budget and, and what you're looking to do.
Ron: (23:09) Yeah. And you don't need necessarily, so the big dogs in the industry that have always ruled and will continue to rule. You don't necessarily need to get into them yet. I think a lot of people look at the standard and I, they are, they are the hundred percent standard, but you know, baby steps because you're going to increase...
Tara: (23:24) Right. And, and in the beginning it definitely was for three years. It's so important to keep your, your, um, costs small as possible.
Ron: (23:32) Yeah. Well, you're figuring out, you know, what, what, what am I doing right? It's right. You don't want to have to work.
Tara: (23:38) Right. Right. Exactly.
Ron: (23:41) Tara, this has been, this has been awesome. Right? So this to me, um, I don't want, eye openings been used a lot too, but it's been very eye opening to me to see the path that you have taken and that you've made a choice to take. Right. No one forced you to do this. You took on this challenge. You're, you're striving in it. You're, you're not just surviving, you're thriving. You know, you're doing everything right and you're very happy. You sound very, very happy and content with what you're doing. So it's fantastic. And I hope that, hope.
Tara: (24:13) Well good Ron, thank you.
Ron: (24:13) No, and I hope that this has inspired, you know, anybody sitting there thinking, I should do this.
Tara: (24:18) I hope so. Do it.
Ron: (24:20) I mean, be calculated about it. Just don't go screaming out of the office.
Tara: (24:26) Don't quit today.
Ron: (24:26) It's, it's perfect. And I appreciate your time. I appreciate the honesty and the openness about the whole situation. And, uh, I look forward to, you know, running into you and, and the, the market out there. Thanks Tara. You stay warm too. I know we got a little bit of snow, so stay warm. Bye. Bye.
LISTEN ON:
SPOTIFY
APPLE PODCASTS
GOOGLE PODCASTS
STITCHER
CASTBOX
RADIO PUBLIC
POCKET CASTS
OVERCAST
BREAKER
TUNE IN
IHEARTRADIO
PANDORA