Investing Talk #7: Insurance Business
Starting or investing in the insurance business can be a lucrative move — it’s a resilient industry with strong cash flow, recurring revenue, and long-term growth potential. Here's a detailed overview depending on whether you're looking to start, invest in, or work in the insurance space.
1. What Is the Insurance Business?
The insurance industry involves offering financial protection (coverage) in exchange for premiums. Common sectors include:
| Type of Insurance | What It Covers |
|---|---|
| Life Insurance | Pays beneficiaries upon death |
| Health Insurance | Covers medical expenses |
| Auto Insurance | Covers car damage, theft, liability |
| Home/Property Insurance | Covers property damage/loss |
| Business/Commercial Insurance | Protects businesses (liability, property, etc.) |
| Reinsurance | Insurance for insurance companies |
2. How to Start an Insurance Business
Option 1: Become an Insurance Broker/Agent
- Sell insurance products from other providers
- Requires licensing in your province/state
- Lower upfront cost and risk
- Earns commissions (often recurring annually)
Option 2: Start an Insurance Agency
- Hire agents/brokers under your brand
- Requires infrastructure, licensing, and training
- You get a cut of all sales made by your team
Option 3: Create Your Own Insurance Company
- Extremely complex and capital-intensive
- Requires regulatory approval and large reserves
- You assume risk liability — but also gain full control and long-term value
3. Key Requirements (Canada/U.S./Australia)
| Requirement | Details |
|---|---|
| License | You must be licensed (individual + business) |
| Capital requirements | Especially if underwriting policies |
| Regulatory compliance | Each country/state has strict rules |
| Insurance partnerships | For brokers/agencies selling 3rd-party policies |
| CRM & quoting software | Essential for managing clients and quotes |
4. Is It Profitable?
Yes — the insurance business can be very profitable because:
- Premiums = recurring revenue
- Risk is spread across many clients
- High customer retention rates
- Low claims ratios = high margin (in some segments)
5. Investing in Insurance (Alternative Option)
If you don’t want to start a business, you can invest in the insurance sector through:
| Method | Examples |
|---|---|
| Stocks | AIA, Manulife, Sun Life, Progressive, Allstate |
| ETFs | KIE (U.S. insurance ETF), IAK |
| Private equity/Franchises | Buy into existing brokerages |
Pros & Cons
| Pros | Cons |
|---|---|
| Recurring revenue | Complex regulations |
| Recession-resistant | High startup costs (if underwriting) |
| Scalable via agents | Licensing and compliance overhead |
| High margins in some segments | Claims management risk |