Starting an insurance brokerage.
Many people are welcoming the opportunity to use their skills and experience to build their own insurance brokerage; to take control of their future and truly benefit from their efforts.
As with any new business, starting your own brokerage requires planning and there are several things to consider. What will make this a viable option for you?
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What you need to know - How to setup your brokerage - Choices available for authorisation.
What you need
Insurance experience
You will have built up experience over a number of years within the industry. This may be directly working for a Broker or Insurer or associated businesses which have provided you with the level of experience needed to provide good and proper advice to your clients. As an FCA regulated industry it is essential that you can demonstrate a track record of providing service in your chosen field.
Technical knowledge
While it is not a requirement to have formal qualifications (but of course it does help), it is essential to demonstrate that you have the level of knowledge necessary to provide technical advice to your client. This will vary depending upon the type of business you want to transact but a reasonable level of technical and product knowledge is a prerequisite.
Sales track record
You will need to have a track record of dealing with insurance buyers. To build a successful business you will have been able to build strong and trusting relationships with your audience and therefore the ability to build your client base.
Commercial awareness
Building your own business requires a basic level of commercial knowledge. This might be the first time you have had to deal with running your own business and although working within a commercial environment will have armed you with good financial knowledge, you will need to be confident in your ability to make commercial decisions. Access to business support and mentoring can be very helpful in the early days of setting up your business, and there are lots of useful places for you to go to for support.
Commitment and drive
It goes without saying that making your business successful will require commitment and drive. As with any new enterprise a considerable amount energy is needed and the amount of time you will need to invest should not be underestimated – the rewards can be great but starting your own business is never an easy option.
Compliance knowledge
General Insurance is regulated by the FCA, so it is essential that brokers operate in a compliant manner. Whether you choose to go down the Directly Authorised or Appointed Representative route knowledge of the FCA requirements is essential. There is a broad range of support services available, online training and development and industry bodies can all help you to ensure that your knowledge remains current. The Chartered Insurance Institute is a great place to start.
“Believe in yourself. It is possible so go for it, but at the same time, get the fundamentals right. You need to plan and prepare. It’s very hard at the start and requires staying power and determination.”
Richard Waltier, Sentio Insurance Brokers
How to Start an Insurance Brokerage
So, you’ve decided to take the plunge. What next? There are two basic ways of setting up an insurance brokerage either a sole trader or a limited company. There are pros and cons to each option and lots of advice is available to help you choose which option is right for you.
Setting up a limited company is an easy process and can be done online at minimal cost. There is an excellent Companies House guide which will take you through the process. If you are setting up a company it should be noted that if the word Insurance is in your name, for example ABC Insurance Brokers Ltd, this is regarded as a sensitive name and will require FCA approval before Companies House will register it. Your chosen name will also need to make it clear that you are not an insurer so if you want to include ‘Insurance’, you will need to include ‘Broker’, ‘Services’ or something similar.
Every business needs a plan. This does not need to be a long and tedious document – after all it is what you do that is important and the best plans in the world will not lead to success unless the execution is good. However, the thought process; how are you going to get business, researching your market and competitors, planning your campaign, marketing/networking etc. is important.
Understanding your cash flow is vital. In starting your own business, you may be exchanging the certainty of a salary for the unpredictability of what business you will win. Your planning should help in establishing when revenue is likely to come through, however it is important that enough allowance is built into your projections to allow for the lack of certainty. The cash outlay involved in forming an insurance brokerage will need to be closely monitored and be influenced by the model you choose Directly Authorised or Appointed Representative. There are lots of helpful sites available containing lots of advice to get you started with your plan including Gov.uk, Princes Trust and Start-up Donut
Download our start-up business toolkit
From market research and business planning to cashflow forecasting and planning for growth, our start-up toolkit will help you to plan and launch a successful brokerage.
FCA Authorisation.
There are two basic routes to FCA authorisation: Directly Authorised and Appointed Representative (AR)
In the past becoming Directly Authorised was the usual route to starting an insurance brokerage. However, following the lead of the Financial Services sector where the AR model is widespread, there has been a significant rise in the number of ARs amongst the General Insurance sector. In fact, this model is widely acknowledged as an alternative to the more traditional approach and a growing number of businesses have made this their preferred route.
The table provides a comparison between the Directly Authorised and Momentum models. The authorisation and regulatory requirements are the same for all ARs, but client ownership, IT, PI and other support will vary.
| Directly Authorised | Appointed Representative (AR) |
|---|---|
| Governance | |
| The firm will need to manage how they run their business by establishing good governance systems and controls. | The principal provides a framework for the business to operate within. |
| Insurer agencies | |
| Building an insurer agency base can be challenging and not all insurers will be prepared to provide an agency and if they are they may require Personal Guarantees. There are a number of networks who can provide access to insurers and membership costs vary. | Placement is generally via the Principal’s agency base. These are invariably comprehensive with access to a broad range of insurers and products. |
| Client money | |
| All client monies are handled by the broker so they will need appropriate systems and controls in place to adhere to FCA rules | All client money is handled by the Principal. They will generally be responsible for cash collection and insurer reconciliation. |
| Client ownership | |
| Always yours | Yours – but important that you confirm with each principal, because some take a different approach to ours. |
| IT/Systems | |
| There are a myriad of different insurance trading platforms available. The choice will depend upon the nature of your business and of course the cost. Operational efficiency is very important to all businesses and features such as single keying, document production and e-trading capability can be very helpful. | The Principal will ordinarily provide the trading platform. If becoming an Appointed Representative is your chosen route it is important to ensure that the platform they adopt meets the requirements of your busines |
| FCA Reporting | |
| The broker is responsible for meeting the FCA reporting and timescale requirements. Further information on is available from the FCA website. | The Principal is responsible for FCA reporting. |
| PI Cover | |
| In order to be authorised the FCA require proof of adequate levels of Professional Indemnity insurance. | The Appointed Representative will be covered under the Principal’s policy, generally. |
| Other support | |
| There are numerous areas of additional support that are important for any new business. Typically this will range from systems and compliance to marketing activities. A number of insurance networks will provide access to these services as part of their proposition and these may be included in the cost of membership or as an add on. | This can vary greatly with some Principals providing a high level of marketing assistance and other support whilst others provide none at all. It is worth checking to see the scope of support which will be provided. |
“The Momentum model is a great opportunity for us to work on quality business from community brokers, and because everything is handled by the Momentum hub, the process is quick and efficient – it’s the best of both worlds for us. It’s really exciting to work with a partner broker in a different and innovative way.”
Jason Howes, Regional Manager, Allianz
Covid-19 and starting an insurance brokerage
2020 has been a year like no other and insurance brokerages have had to adapt to ensure business continuity.
During this time, we have seen a substantial increase in insurance professionals looking to start their own brokerages with the desire to
- Create job security and income protection
- Ensure that they maintain the right work/life balance
- Provide clients with the right level of support
Recent articles featuring Momentum in Insurance Business Magazine and Insurance Age explore the opportunities for insurance professionals.
Why are more entrepreneurs than ever looking to start their own brokerage?
How Momentum will help you to start an insurance brokerage
Start at the beginning
From day one, you will have professional support to get your business up and running quickly.
Whether it is putting together a business plan or budget, working on your brand or setting up a scheme, there will be someone to answer your questions and support you.
We have got your back office covered
When you are setting up your insurance brokerage, you must put in place a robust structure that will support growth, satisfy customer needs and future-proof your business. With Momentum, you can save yourself time and money by using tried-and-trusted services already in place.
An experienced back-office team will deal with your broking and other admin requirements such as insurance placement, setting up client records and dealing with changes during the policy term. They will also deal with financial matters like client-money handling and insurer reconciliation.
You will also benefit from using a market-leading insurance broking platform: Acturis. It is an effective platform with e-trading capabilities designed to meet the requirements of a commercial insurance business.
“Momentum is a great trading partner for Ageas. Over the past couple of years, we have developed a close working relationship that has translated into a growing book of profitable business. The Momentum model is incredibly valuable to us, it gives us access to some skilled and experienced brokers around the country that otherwise might not have been on our radar.”
David A Scott, Commercial Trading Manager, Ageas
The Momentum proposition
The Momentum proposition has continued to evolve over the last few years to provide all encompassing support for our broker partners including
- Access to more than 240 insurer agencies
- A broking team with the expertise and strength to manage the increasingly difficult market
- Exclusive placement solutions and enhanced earning potential
- Consistent and significant investment in systems, including Acturis
- Claims management support
- A marketing team dedicated to helping you win and retain clients
Challenge accepted?
The rewards can be great but starting an insurance brokerage is never an easy option. Making your business successful will require commitment and drive.
So, are you ready for the challenge?
