Starting an Auto Insurance Agency

[hclewk]

What is the name of your state? Texas

I want to start a small automobile liability insurance company, that insures no more than about 200 people at a time. I would like to set up individual accounts for each individual, and everyone would pay $50 a month. Say Bob has been with my insurance company for 10 months, so he has paid in $500. Bob gets in a fender-bender that causes $300 to the other person's car. We deduct the $300 from what he has paid, and his payments stay at $50. Now, if the previous fender-bender would have caused $1000 to the other person's car, we use the $500 in Bob's account, and Bob takes out a loan from us for $500, that he is obligated to pay back. Now Bob has a balance of $-500. Until he reaches the $0 mark again, he must pay $100 / month. But once the $0 mark is reached, Bob only has to pay $50. If Bob decides to cancel his account with us, and he has a negative balance, he must pay the remaining balance. However if Bob cancels and he has a positive balance, Bob will receive all of the funds in his account. Is this a legally feasible company? What steps would I need to go through in order to make this company a reality?

 

[moburkes]

No. That's not insurance. If a person has to pay for the damage that he has caused, then it is no longer insurance. Also, there is a huge difference between an insurance agency and an insurance company.

What you are attempting to describe is a fraternal organization in which people pool their money to pay the claims of others. There are TONS out there.

The problem with your scenario is, with 200 people at $50/month, that's $10,000/month. Let's say that you start the company today. I join and pay $50. I could have an accident tomorrow that causes $24000 in property damage, let alone the medical bills. How are you going to pay that claim?

 

[tranquility]

This has been a hot thing with property as well. Almost all I've seen have a professional agency running them and lawyers up the wazoo. I don't think you have any idea of the risk you're taking. Not every claim is a fender bender.

 

[clueless3]

Insurance is a highly specialized and heavily regulated industry. By law, you cannot have the word "Insurance" in the name of the company and you cannot market your product and service as such unless you meet all the lawful requirements.

If you really want to offer an "insurance" product, you need to start with your state's Department of Insurance. Contact them and ask for all the requirements. Then you need to come up with the cash. Then you can form the company and market your product and service. It's a long way ahead though, but if you really want to do it then you can. New insurance companies pop up all the time. Who knows, yours might be the next one to take over State Farm!!

However, if you simply want to offer the product you described and don't want to offer an "insurance", then it's a lot simpler. Just make sure that you don't call it as such, make sure that your customers understand that it's NOT an insurance, that they need to have a real auto insurance policy (in ADDITION to your product) to meet the state's liability insurance requirement.

In my opinion though, I cannot imagine having to buy an auto liability insurance AND an add-on product! 25% of the people are having problem paying for their own auto insurance; now how do they have the money for the add-on?? If they don't care to carry the legal requirement, why do they care to buy an optional product?

You need to come up with the right business model for this to work.