A Guide on How to Start a Car Insurance Company

Here are the most crucial factors to consider when starting a car insurance company:

1. Licensing — You will have to get an insurance license from the state or states where you intend to operate. Getting this license will include pre-licensing exams, background checks, and application fees. Before you can start selling insurance, your insurance rates and policy forms must be approved by the state insurance department. 
2. Funding and capital requirements — States have specific capital and surplus requirements to ensure that insurance companies have enough financial resources to pay claims. These requirements can be quite high, depending on the state. 
3. Grants — Choose one of many grants available for your car insurance company such as US Grants, State and Local Economic Development Programs, or Federal Grants.
4. Franchises — Here are a few franchises to consider Allstate Insurance, Farmers Insurance, or Brightway Insurance.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Equipment and technology — You’ll need software that allows you to generate insurance quotes for customers based on their specific needs and information. Depending on your specific business model and services, you may need specialized tools for tasks like risk assessment, claims management, or compliance tracking.

Step 1: Decide if the Business Is Right for You

Pros and Cons

Starting a car insurance company has pros and cons to consider before deciding if it’s right for you.

Car Insurance Industry Trends

Industry Size and Growth

• Industry size and past growth — The US auto insurance industry is worth almost $365 billion, but it has been in a slight decline over the past five years.
• Growth forecast — The global auto insurance market is projected to keep declining over the next five years.
• Number of businesses — There are about 1,400 car insurance businesses operating in the US.
• Number of people employed — Auto insurance companies employ about 269,000 people.((https://www.ibisworld.com/united-states/market-research-reports/automobile-insurance-industry/))

Trends and Challenges

Trends

• The new and used car industries are seeing strong sales and increasing demand for car insurance.
• More drivers on the road are millennials and Gen Zers, meaning that car insurance companies need to focus their marketing on these groups.

Challenges

• Car safety improvements have decreased auto insurance premiums by about 10% for cars with a standard safety feature package.
• More and more people are buying their car insurance online directly from insurance providers, which presents a challenge for auto insurance agents, who serve as “middlemen” between the insurance carriers and car owners. 

Demand Hotspots

• Most popular states — The most popular states for insurance agents are Arizona, Mississippi, and Hawaii.
• Least popular states — The least popular states for insurance agents are Maine, West Virginia, and Tennessee.((https://www.zippia.com/insurance-agent-jobs/best-states/))

Price Differences Across the Country

• More expensive — Car insurance is the most expensive in Louisiana, Florida, and California, where rates are over $2,000 per year.
• Less expensive — Car insurance is the least expensive in Maine, New Hampshire, and Vermont, where rates are under $1,300.((https://www.insure.com/car-insurance/car-insurance-rates.html))

What Kind of People Work in Car Insurance?

• Gender — 48.4% of insurance agents are female, while 51.6% are male.
• Average level of education — The average insurance agent has a bachelor’s degree.
• Average age — The average insurance agent in the US is 46.1 years old.((https://www.zippia.com/insurance-agent-jobs/demographics/))

How Much Does It Cost to Start a Car Insurance Business?

Starting your car insurance company from home will only cost about $1,800. Costs include a website, education, and licensing. To start your company in an office, you’ll spend about $17,000 for a rental deposit, furniture, and office equipment.

You can generally train for your property and casualty insurance license in about six weeks for about $700. Education and licensing requirements vary by state, so check with your state’s office of insurance commissioners.

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$150–$200	$175
Business licenses and permits	$100–$300	$200
Insurance	$100–$300	$200
Business cards and brochures	$200–$300	$250
Website setup	$1,000–$3,000	$2,000
Office rental	$0–$2,500	$1,250
Office furniture and equipment	$0–$10,000	$5,000
Education and licensing	$300–$500	$400
Total	$1,850–$17,100	$9,475

How Much Can You Earn From a Car Insurance Business?

Generally, you will earn about 15% commission on annual premiums which average about $1,500. Your profit margin when working from home should be about 90%.

In your first year or two, you could work from home and sell five policies per week, bringing in nearly $60,000 in annual revenue. This would mean more than $50,000 in profit, assuming that 90% margin. As your brand gains recognition, sales could climb to 30 policies per week. At this stage, you’d rent a commercial space and hire staff, reducing your profit margin to around 40%. With an annual revenue of $350,000, you’d make a tidy profit of $140,000.

What Barriers to Entry Are There?

There are a few barriers to entry for a car insurance company. Your biggest challenges will be:

• The startup costs if you decide to open an office
• Competing in a saturated market
• Finding insurance carriers to partner with

Step 2: Hone Your Idea

Now that you know what’s involved in starting a car insurance company, it’s a good idea to hone your concept in preparation to enter a competitive market.

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an Opportunity

Research car insurance companies in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a car insurance firm that works with multiple carriers.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine Your Insurance Coverage

Products for car insurance are straightforward — liability coverage, collision coverage, and comprehensive coverage, but you will need to choose the carriers you’ll be working with. However, you could expand if you get more licensing and offer the following:

• Business insurance
• Health insurance
• Homeowner’s insurance and renter’s insurance
• Worker’s compensation insurance
• Gap insurance
• Life insurance

How Much Should You Charge for Car Insurance?

You will be bound by the insurance carrier rates which are based on a risk assessment of the customer. Your commissions will range from 10% to 20% of the annual premiums. Your costs when you have an office will be rent, overhead, and labor. You should aim for a profit margin of 40%.

Once you know your costs, you can use our profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify Your Target Market

Your target market will be car owners, which is very broad. However, the number of millennial and Gen Z drivers is increasing. You should spread out your marketing to include TikTok, Instagram, Facebook, and LinkedIn. You could also try to partner with car dealers to get referrals.

Where? Choose Your Business Premises

In the early stages, you may want to run your business from home to keep costs low but as your business grows, you’ll likely need to hire workers for various roles and may need to rent an office. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Car Insurance Company Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “car insurance” or “auto insurance,” boosts SEO
• Name should allow for expansion, for example, “SecureDrive Insurance” over “LowCost Insurance” or “SportsCar Insurance”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan for Your Car Insurance Company

Here are the key components of a business plan:

• Executive summary — A brief overview of the car insurance company, highlighting its mission, vision, and key objectives
• Business overview — An in-depth look at the car insurance industry, the target market, and the unique value proposition the company offers
• Product and services — Detailed information on the range of car insurance products and services provided, including coverage options and special features
• Market analysis — A comprehensive analysis of the car insurance market, identifying trends, opportunities, and potential challenges, with a focus on customer needs and preferences
• Competitive analysis — Examination of other car insurance providers in the market, evaluating their strengths and weaknesses to position the company strategically
• Sales and marketing — Strategies for promoting and selling car insurance products, including target audience, marketing channels, and sales tactics
• Management team — Introduction to the key individuals leading the company, highlighting their expertise and roles in driving business success
• Operations plan — Detailed information on the day-to-day operations of the car insurance company, covering processes, technology, and key partnerships
• Financial plan — Projections of the company’s financial performance, including revenue forecasts, expense estimates, and a break-even analysis
• Appendix — Supplementary materials, such as charts, graphs, and additional data supporting the business plan

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose Where to Register Your Company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to car insurance companies.

If you’re willing to move, you could really maximize your business! Keep in mind that it’s relatively easy to transfer your business to another state.

Choose Your Business Structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your car insurance company will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the main options:

• Sole proprietorship — The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General partnership — Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) –— Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corporation — Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corporation — This refers to the tax classification of the business but is not a business entity. A corporation or an LLC can elect to be an S Corp for tax status. In an S Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number or EIN. You can file for your EIN online, or by mail/fax. Visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund Your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans — This is the most common method but getting approved requires a rock-solid business plan and a strong credit history.
• SBA-guaranteed loans — The Small Business Administration can act as a guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants — A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and family — Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding — Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal — Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a car insurance business.

Step 8: Apply for Licenses/Permits

Starting a car insurance business requires obtaining a number of licenses and permits from local, state, and federal governments.

You need to have a property and casualty insurance license. Check with your state for requirements.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your car insurance business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability — The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business property — Provides coverage for your equipment and supplies.
• Equipment breakdown insurance — Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation — Provides compensation to employees injured on the job.
• Property — Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto — Protection for your company-owned vehicle.
• Professional liability — Protects against claims from clients who say they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP) — This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential Software and Tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You may want to use industry-specific software, such as Vertafore, EZLynx, or Zywave, to manage your leads, sales, policies, invoicing, and payments. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, FreshBooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences of filing incorrect tax documents can be harsh, so accuracy is crucial. 

Develop Your Website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech savvy, you can hire a web designer or developer to create a custom website for your business.

However, people are unlikely to find your website unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

• Website & SEO — Optimize your website with SEO best practices for insurance-related terms and encourage satisfied clients to leave positive reviews to boost local visibility.
• Professional branding — Ensure your branding conveys security, trust, and reliability across all elements, from your logo to client communications.
• Direct outreach — Build referral partnerships by networking with car dealerships, driving schools, and auto repair shops.
• Social media engagement — Engage customers and businesses through LinkedIn, Facebook, and Instagram, sharing informative content, customer stories, and safety tips.
• Insurance insights blog — Publish articles about car safety, insurance tips, and industry trends to establish your expertise.
• Customer testimonials and success stories — Feature stories from satisfied customers to illustrate the value and impact of your insurance products.
• Insurance seminars and webinars — Host educational sessions on car insurance topics to educate and attract new customers.
• Partnerships with automotive businesses — Engage in cross-promotions and joint marketing campaigns with automotive businesses to widen your reach.
• Referral incentives — Encourage word-of-mouth marketing by rewarding customers who refer new clients.
• Email campaigns — Maintain contact with clients through newsletters offering new policy options, insurance tips, and exclusive promotions.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Today’s customers are inundated with buying options, so you’ll have a real advantage if they can quickly grasp how your car insurance company meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your car insurance business could be: 

• Affordable car insurance to keep you safe on the road
• Comprehensive coverage to protect your investment
• Car insurance for all your needs — we’ll meet with you on your time

Networking

You may not like to network or use personal connections for business gain but your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a car insurance firm, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in car insurance for years and can offer invaluable insight and industry connections.

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in car insurance. You’ll probably generate new customers or find companies with which you could establish a partnership.

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a car insurance business include:

• Customer service representative — greeting customers, handling customer calls
• Claims processor — handling customer claims
• General manager — scheduling, staff management, accounting
• Marketing lead — SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Run a Car Insurance Company — Start Making Money!

Car insurance is a necessity for anyone with a vehicle, which is why the industry is worth about $365 billion in the United States alone. Getting an insurance license is fairly simple and inexpensive, so why not take the leap, get licensed, and start your own firm? You can make good money working from home, then expand and add franchise offices. 

Now that you’ve got some business education under your belt, it’s time to get that license and start selling your way to car insurance success!

FAQs

Are car insurance companies profitable?

Car insurance companies can be profitable, but their profitability can be influenced by many factors, including market conditions, competition, and regulatory environment.

How can I make more money from my car insurance business?

First of all, you can ramp up your sales efforts, but you can also get additional licensing to be able to sell other kinds of insurance. Once you’re licensed you can contact your existing car insurance customers to upsell them other types of policies.

How can I differentiate my car insurance company from competitors in the market?

To differentiate your car insurance company from competitors, focus on providing exceptional customer service, personalized coverage options, and innovative solutions. Emphasize quick and hassle-free claims processing, 24/7 customer support, and transparent communication. 

Can I start a car insurance company from home?

While starting a car insurance company from home may seem challenging, it is not impossible. However, it requires careful planning, adherence to legal and regulatory requirements, and significant industry knowledge.