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every step of the way

Starting Your OwnInsurance Brokerage

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Many people are welcoming the opportunityto use their skills and experience to build theirown insurance brokerage; to take control oftheir future and truly benefit from theirefforts.

What you need to knowWhat will make this a viable option for you?There are a number of qualities which areimportant to the success of your business.

Insurance Experience

You will have built up experience over a numberof years within the industry. This may be directlyworking for a Broker or Insurer or associatedbusinesses which have provided you with thelevel of experience needed to provide good andproper advice to your clients. As a regulatedindustry it is essential that you can demonstratea track record of providing service in yourchosen field.

Technical Knowledge

Whilst it is not a requirement to have formalqualifications (but of course that helps) it isessential to demonstrate that you have the levelof knowledge necessary to provide technicaladvice to your client. This will vary dependingupon the type of business you want to transactbut a reasonable level of technical and productknowledge is essential.

Sales Track Record

You will need to have a track record of dealingwith insurance buyers. To build a successfulbusiness you will have been able to build strongand trusting relationships with your audienceand therefore the ability to build your clientbase.

Commercial Awareness

Building your own business requires a basiclevel of commercial knowledge. This might bethe first time you have had to deal with runningyour own business and although working withina commercial environment will have armed you

When you are in the driving seat you are making the decisions

that affect you.

with good financial knowledge you will need tobe confident in your ability to make commercialdecisions. Access to business support andmentoring can be very helpful in the early daysof setting up your business and there are lots ofuseful places for you go to for support. Thefollowing links may be useful:

gov.uk - start your own business

barclays.co.uk

Compliance Knowledge

General Insurance is regulated by the FinancialConduct Authority so it is essential that brokersoperate in a compliant manner. Whether youchoose to go down the Directly Authorised orAppointed Representative route knowledge ofthe FCA requirements is essential.  There is abroad range of support services available,online training and development and industrybodies can all help you to ensure that yourknowledge remains current. The CharteredInsurance Institute is a great place to start.

Commitment

It goes without saying that making yourbusiness successful will require commitmentand drive. As with any new enterprise aconsiderable amount of energy is needed andthe amount of time you will need to investshould not be underestimated – the rewardscan be great but starting your own business isnever an easy option.

As with any new business, starting your own brokerage requires planning and there are anumber of things to consider.

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Business Planning

Every business needs a plan. This does not need to be a long and tedious document - after all it is what youdo 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 competi-tors, planning your campaign, marketing/networking etc is important.

Understanding your cash flow is vital. In starting your own business you may be exchanging the certaintyof a salary cheque for the unpredictability of what business you will win. Your planning should help inestablishing when revenue is likely to come through, however it is important that enough allowance isbuilt into your projections to allow for the the lack of certainty. The cash outlay involved in forming aninsurance brokerage will need to be closely monitored and be influenced by the model you choose -Directly Authorised or Appointed Representative. Again there are lots of helpful sites available containinglots of advice to get you started with your plan.

Marketing

During the planning stage of starting your own brokerage it is important that some thought is given to themarketing of your business. This does not have to be a complex marketing strategy, involving a bigbudget, but should include some research into your target audience, who they are, where they can befound and how they buy, along with some ideas about how you would like your clients and prospects toperceive you and the type of message you would like your business to convey – this is the development ofyour brand. A good brand will:

There are lots of resources on the web with excellent, easy to follow advice on the most cost effectivemethods to begin to market your business effectively. You might find Marketing Donut and the MicrosoftBusiness Hub useful.

How to set up your brokerageSo, you’ve decided to take the plunge. What next?

Setting up the company

There are two basic ways of setting up an insurance brokerage eithera sole trader or a limited company. There are pros and cons to eachoption and lots of advice is available to help you choose which optionis right for you.

Setting up a limited company is an easy process and can be doneonline at minimal cost. There is an excellent Companies House guidewhich will take you through the process. If you are setting up alimited company it should be noted that if the word Insurance is inyour name, for example ABC Insurance Brokers Ltd, this is regarded asa sensitive name and will require FCA approval before CompaniesHouse will register it. Your chosen name will also need to make itclear that you are not an insurer so if you want to include ‘Insurance’,you will need to include ‘Broker’, ‘Services’ or something similar.

Deliver your message clearly Connect you to your target prospects

Confirm your credibility Motivate them to choose you

An important part of building your brand and your presence in themarket is establishing a website. In its simplest form a website helps togive your business credibility and professionalism. It gives yourpotential customers an opportunity to find you, understand what youdo and make contact with you. The Guardian has some great tips andadvice on designing a website from a small business perspective. Don’tbe fooled into thinking that because you are just starting out, you don’tneed a web presence yet - without one your business will not have thecredibility to compete with the rest of the market.

Building a pipeline of future opportunities will also be important for the success of your business. Thereare some great customer relationship management (CRM) systems available which will help you managethe relationship with your clients and build good prospect information to assist your marketing activities.There are many low cost and even no cost options available designed specifically to work well for smallbusinesses.

Legal Advice

If you are leaving employment it is important to understand any contractual obligations to your pastemployer. This is particularly important when clients may be following you. Interpretation of suchobligations are often not straightforward and getting an expert opinion from an employment lawyer isoften a very sensible investment. There is some useful information regarding covenants at out-law.com.

The Choices Available

So you have what it takes – what are your options? There are two basicroutes to obtaining FCA Authorisation.

In the past becoming Directly Authorised was the usual route to settingup an insurance brokerage. However following the lead of the generalfinancial services sector where the Appointed Representative model iswide spread there has been a significant rise in the number of AppointedRepresentatives amongst the general insurance sector. In fact this modelis now widely acknowledged as an alternative to the more traditionalapproach and a growing number of business have made this theirpreferred route.

The following table provides a comparison between the two models.  Not all Appointed Representativemodels are the same and the following is based upon the “usual” arrangements adopted by the mainproviders. There are currently two dedicated providers of Appointed Representative services in the UKMomentum Broker Solutions & Ten Insurance Services and numerous companies who provide services asan addition to their core activities as retail brokers.

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Appointed RepresentativeDirectly Authorised

Directly Authorised Appointed Representative

AuthorisationProcess

The process is undertaken directly with theFCA and can be a complex one. The FCA doprovide lots of advice to get you off on theright foot.

Timescales can vary and within their servicecharter the FCA website currently states“we have six months from when we receive acompleted application to make our decisionand the earlier of (a) 12 months from receiptof an incomplete application; or (b) sixmonths from when an application which wasincomplete becomes complete. (Anapplication is incomplete if information ordocuments required to be submitted as partof the application pack are not provided.)”

This is undertaken by the Principal and acombination of their own due diligenceand FCA application process. Generallytimescales are a lot shorter as the FCA havealready satisfied themselves regarding thePrincipal’s process, systems and controls.

AuthorisationCost

The amount will depend on whether theapplication is straightforward (£1,500),moderately complex (£5,000) or complex(£25,000). Most financial advisers,mortgage brokers and general insuranceintermediaries will be straightforwardapplications.

Invariably there is little or no cost as theactivity is undertaken by the Principal.

CapitalRequirement

This will be based upon the permissionsyou have and can vary between £5,000 and£50,000 as a minimum.

The FCA capital adequacy requirement ismet by the Principal so the only Capitalrequired is that needed to run theinsurance brokerage.

GovernanceThe firm will need to manage how they runtheir business by establishing good govern-ance systems and controls.

The Principal firm will usually supply aframework for the business to operate with-in.

InsurerAgencies

Building an insurer agency base can bechallenging and not all insurers will beprepared to provide an agency and if theyare they may require Personal Guarantees.There are a number of networks who canprovide access to insurers and membershipcosts vary.

Placement is generally via the Principal’sagency base. These are invariablycomprehensive with access to a broadrange of insurers and products.

Client MoneyHandling

All client monies are handled by the brokerso they will need appropriate systems andcontrols in place to adhere to FCA rules.

All client money is handled by the Principal.They will generally be responsible for cashcollection and insurer reconciliation.

ClientOwnership

Always yours. Yours - but important that you confirm thiswith the Principal as occasionally a differentapproach is adopted.

IT/Systems

There are a myriad of different insurancetrading platforms available. The choice willdepend upon the nature of your businessand of course the cost. Operationalefficiency is very important to all businessesand features such as single keying,document production and e-tradingcapability can be very helpful.

The Principal will ordinarily provide thetrading platform. If becoming anAppointed Representative is your chosenroute it is important to ensure that theplatform they adopt meets therequirements of your business.

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every step of the way

0116 2388 880

howard.pepper@momentumsolutions.co.uk

www.momentumsolutions.co.uk/contact

© Copyright 2014 Momentum Broker Solutions Limited. All Rights Reserved.

Momentum Broker Solutions is a limited company registered in England & Wales No 07267159.Registered Office: Press House, Narborough Wood Park, Desford Road, Enderby, Leicester, LE19 4XT.Authorised and Regulated by the Financial Conduct Authority.

The Information contained within this document is general information only and believed to be correct at the time of publishing. It cannot be relied upon as advice or information in respect of any individual situation.This document contains links to third party websites for which the author is not responsible, and we cannot accept liability for any content expressed within them.

Helping you to start-up Enabling you to stand out

Supporting you to succeed

Directly Authorised Appointed Representative

FCA ReportingThe broker is responsible for meeting theFCA reporting and timescale requirements.Further information is available from theFCA website.

The Principal is responsible for FCAreporting.

ProfessionalIndemnityInsurance

In order to be authorised the FCA requireproof of adequate levels of ProfessionalIndemnity insurance.

Generally the Appointed Representativewill be covered under the Principal’s policy

FSCS & FCA Fees The responsibility of the broker. These are the responsibility of the Principal.

Other Support

There are numerous areas of additionalsupport that are important for any newbusiness. Typically this will range fromsystems and compliance to marketingactivities. A number of insurance networkswill provide access to these services as partof their proposition and these may beincluded in the cost of membership or as anadd on.

This can vary greatly with some Principalsproviding a high level of marketingassistance and other support whilst othersprovide none at all. It is worth checking tosee the scope of support which will beprovided.

Starting your own business is agreat thing to do.

Every year over 100 individuals set-uptheir own insurance brokerages andhopefully this document has given youbetter insight into what is involved.