If you’re just starting out as a small agency, as a firm or IMO, you may at first struggle with getting carrier appointments, but persistence is key to your success.
Particularly right now, with the work-from-home revolution removing some of the barriers presented by geography, starting your own insurance agency seems like an attractive option for entrepreneurs with industry experience. As technology and outside forces shake up the industry, there are many new opportunities for those looking to join it, and for industry long-timers who want to try new things.
For those whose long-term dreams for their insurance agency are beyond daily insurance retail sales – say, those hoping to become managing general agents (MGAs) or managing general underwriters (MGUs), or who are planning to have an insurance marketing organization (IMO) network – securing a contract with a carrier can be a serious barrier to achieving those goals.
Before we dive into some of the paths to getting carrier appointments in your early days, just a quick reminder: We’re not attorneys, and insurance regulation is many-layered and fractured across states. So, this is a topical guide with points of consideration to get you started on your agency journey, this is not legal guidance that’ll get you off the hook if you find yourself on the wrong side of a regulator.
Why is it difficult to get an insurance carrier contract?
Carriers often are reluctant to negotiate contracts with smaller agencies. Larger carriers are looking for ways to get market share through the fastest avenues possible, which generally means partnering with agencies that have the biggest producer loads.
Getting a carrier contract, though, is key to recruiting good producers. Writing with carriers that have attractive products attracts top producers. And getting top producers makes it easier to win favorable contracts with carriers. This is a little bit of a perpetual-motion machine, where it’s difficult to tell which one comes first. But, realistically, you’ll have to tackle contracts and appointments pretty early in your business.
Why do carriers prefer working with larger insurance agencies?
There are a few main reasons carriers are inclined to work with bigger agencies and not inclined to sign with smaller agencies:
- Insurance carriers don’t want to put the work into a contract with an agency that’s going to be swallowed in the following year’s M&A activity.
- Carriers are paying their lawyers to draw up contracts, and setting a contract with smaller agencies means smaller ROI as far as their legal team’s time.
- Carrier services like proprietary products and limited access services are more easily extended to larger agencies whose distribution models are already assured.
- New and small are both risks for carriers. Inexperience can mean having processes that aren’t built to support robust compliance activity, which poses bigger risks to the carrier.
Unless you have a few hundred producers onboard right out of the gate, considering how to get carrier appointments is going to take a good deal of thought and effort.
Even more than other beginning IMOs, FMOs, etc., an agency that’s starting out as a sole proprietorship faces roadblocks. For one thing, many states won’t extend an agency license to a sole proprietorship with only one affiliated producer. So, know going in that you’ll need your downstream producers lined up if you want to be taken seriously in the industry.
Getting a carrier appointment indirectly – aggregators, MGAs/MGUs
Because it can be so difficult to secure a contract with a carrier before you have a robust pipeline of producers, many first start by securing contracts through upstream agencies like FMOs, aggregators, or MGAs or MGUs.
If you go this route, think first about the carriers you’d like to get appointments with. Knowing ahead of time which carriers you’re looking to join with can give you an idea of how many larger agencies you have to partner with to achieve that list, as well as helping you target your partnership goals.
There are pros and cons of working with a field marketing organization (or its insurance marketing organization or national marketing organization counterparts) vs. an aggregator vs. an MGA or MGU. Each has different kinds of services and support to offer, whether it is more marketing resources, better commission rates, or more exclusive products. Regardless of what path you decide to take, each of these sorts of insurance business middlemen can grant your agency access to carrier contracts and appointments that you may struggle to secure on your own.
How to establish a relationship with a carrier
If you are intent on working directly with carriers, then you’ll need to cultivate a relationship with your intended partners in order to secure a contract.
Consider which carriers and products you’d like to represent and why. Then, keep in mind the following as you make your pitch:
- Sometimes smaller is better – finding a carrier that has a track record of working with new agencies may give you a boost.
- Be understanding that your contract may be very generic. You aren’t in a great position to negotiate sweet deals, and you’ll have to prove that you can build a distribution network.
- Open up your plans – be ready to show your strategy and emphasize what sets your agency apart. You’ll need to drive into your edge, what makes you a cut above, in order to excite your carrier about working with you.
- Drive to your process. If you can show that you have processes and tech in place that keep your producers compliant *cough if you have AgentSync cough * then you can take away that fear of new agencies posing outsized risks to a carrier.
- Carriers that are using Just-In-Time appointments may also be more inclined to give you a chance because they can hold off on paying for state appointment fees until your producers have submitted business.
Once you’ve made a connection, you’ll need to obtain the contract and appointment paperwork and submit it back through your carrier partners for them to officially designate your appointment with the state.
Carriers have their own appointment processes, and are ultimately responsible for following state laws. Some states only require carriers to maintain internal lists or annual updates to the state for appointments. Other states only require carriers to appoint the individual agency/DRLP. But a plurality of states require carriers to appoint all producers who write on their paper.
While sometimes you only need to get your agency appointed and then allow your individual producers to sell under an umbrella appointment, only a few states actually allow that (a not-unheard-of misconception in the insurance industry, to be sure).
Establishing a working relationship with a carrier
Whether you’re working directly with a carrier or through an upstream agency umbrella, you’ll need to be somewhat familiar with the appointment requirements of the various regions your producers are working in. Because states take varied approaches to producer appointments, being well-informed and easy to work with can move you up a carrier’s preferred partner list.
This is where putting in the work in your own producer onboarding processes ahead of seeking carrier appointments will pay dividends. If you have a streamlined process for initiating, storing, and maintaining information for background checks, CE, license validation, etc., then plugging into a carrier or upstream agency’s own process will create fullstack efficiency with fewer disruptions to everyone’s flow of business.
Being aware of these differences and state-by-state requirements can help you have a compliant working relationship with a carrier. Conversely, carriers that wave these appointment processes for your agents are throwing up a red flag, and you should consider whether you want to be in their insurance distribution channel with the summary risks they’re taking on (and in doing so, sharing with you).
If you’re interested in technology that will position your new agency as the best possible partner for insurance carriers, see how AgentSync can help.