Buy Captive or Start Indy P&C?

[32fever]

What would you do? (assuming minimal experience in insurance industry if that matters in your advice)

Would you start an Indy P&C agency from scratch or purchase the interest in an established Allstate book of business that is in a $1.2 - $2.2M premium range? If you answer is AS, I further ask would you pay more for $2+M or try to find a $1.5M?

The general advice on this site favors IA, but what about IA startup vs a book of business.

I guess the tradeoff in my mind is this:
Startup with less out of pocket and grow slowly, either no debt or minimal
Purchase existing and undertake long term debt you have to service in exchange for instant cash flow

 

[insurance1822]

That's a pretty big range there for a BOB. If the agency is consistently hitting favorable loss ratios & retention....You'd have a good argument to purchase the book instead of going indy b/c when you consider cash flow & bonus....you'd be in a nice spot.

Nomatter how you slice it there's not easy clear cut perfect answer. Ultimately, you'd regret going w/ Allstate. But if you're cash flowing solid money out of the gates along w/ bonus etc...ehh....I mean not totally bad either.

Tough call

 

[shawnmwalker]

Again Ins 1899 is almost spot on.

Wide rage. I would not pay more than 1.8 times for the book. Education is strong over there.

On important thing to consider. Where is current owner going? Why is he leaving?

Where? Look at AM best data on Market share by carrier.

Also, I have met a tons of new guys who buy an allstate, and then very shortly after buying realize they should have gone indy?

 

[Andle]

You have a lot to consider. Do the math on the cash flow and use conservative estimates. Talk to Allstate agents in your state and discuss the current underwriting and competitive position they are experiencing.

If you choose Allstate I recommend buying the largest book you can purely for cash flow.

If you are not comfortable pitching life/financial products Allstate may not be for you. Their bonus structure includes an all or almost nothing life/financial qualifier.

 

[insurance1822]

If you purchase a 1.5MM BOB you're looking a cash flow of about $40,000 / year (not including bonus.) You'll get solid training, learn the business w/ great resources at your fingertips & can get yourself to "good" money rather quickly. It depends on what type of income you desire & if your somebody who's happy making $150,000 / year....you'll get there quicker through buying an Allstate BOB.

Like I said, you'll end up regretting it. If you think 150k is your number, you may get there & realize how much more you'd be making as an IA. You'll be forced to sell life insurance products to get bonus & the company will ultimately enslave you. But again, there's many people who would say "who cares if I'm making 150k."



Debt Service $54,000
Rent $18,000
E&O $2,000
Phones, electric etc $7,000
CSR $30,000

 

[32fever]

Thanks for the responses. There were two AS opportunities near me. The largest book looks like it is gone to someone with Allstate, so that tells you something. If an agency is under $1.5M, there are enhanced commissions just like they do for new agents, although they don't do a full 100%. I feel that it is a great program though and shows Allstate's commitment to helping agencies grow to that somewhat "typical" $2.3-$3.2M book that I seem to see around us.

But I feel that Insurance 1822 has a great point. The quick cash flow is enticing, but the long term "workin for the man" concept still remains. I think that applies whether you make 150k, 300k, or 40k.

 

[cgreene]

I had the same challenge a few months ago when I started I just finished my 11th month and we are over 1 million in premium. I'm so glad I did not buy an Allstate agency after what is going on with them. The cash for the stuff in the front in your to do whatever you can the first year

 

[RicFlairII]

There is nearly always shaky advice on any thread involving Allstate.

If you buy an Allstate agency, you dont own anything that you can really
count on.

If you dont meet your quotas, you will lose your agency and your investment
will be down the drain. Allstate talks a great game, but there are just to many pitfalls for a person to depend on it as a career (I was Alllstate agent/owner for 25 years).

This being said, starting fresh as an IA will be tough if you dont have a lot of
experience. Your best bet may be to work for an agency for a while and get
experience and go from there.

 

[HelpWanted]

I would purchase the “No-Bit” book at a decent valuation and run with it for 2-3 years until enhanced commissions have decreased. Flip the book at that point or you will be forced to hold 60 months to receive the full vested TPP on the new policies written since purchase.

Indy is the strong long-term play but these scratch and “No-Bit” opportunities at 43% and 34% commission are difficult to pass up. With the minimal experience I also like the Allstate play for training and knowledge of the industry.

Caution 1: RMP’s have tightened greatly in the last 12 months. Make sure that your state is starting to soften the restrictions. If not, wait until that time. You don’t want major restrictions during your highest commission months.

Caution 2: Be ready to sell life insurance. It will be a must.

No-Bit should generate 30k in revenue per month in Year 1.

Take the cash from Allstate and bank it for your future independent agency. You could easily profit 500k+ in 3 years on the current contract. I dislike several things about Allstate but the new hire contacts have made people rich in recent years.

 

[tpowell138]

To me this is a matter of the type of person you are. It's not about the money in any way. You can buy a AS BOB or a INDY BOB in that matter to get cash flow.

You will end up giving more income to AS compared to partnering up with a aggregator and sharing comish.
But if your not the type of person who wants to develop a brand, image and marketing material then AS is what you should do.

I would not do anything other then INDY after working for State Farm for 5 years. With the right markets you will always have the upper hand against AS in terms of competitiveness.

Best of luck in your future! No need to re-invent the wheel just put a plan in place and stay focus on your goals.