The real cost to start an insurance company: what founders actually spent

I asked five insurance founders to share their real startup costs. Two asked to remain anonymous. Three agreed to speak on the record.

Their numbers tell a consistent story.

Case A: Midwest regional mutual insurer

• Lines of business: Homeowners and auto

• State requirement: $3 million

• Actual capital raised: $18 million

• Time to first policy: 14 months

• Burn rate: $420,000 per month

Case B: Specialty liability carrier

• Lines of business: Professional liability for healthcare providers

• State requirement: $4 million

• Actual capital raised: $22 million

• Time to first policy: 19 months

• Burn rate: $380,000 per month

Case C: Captive insurer (Fortune 500 subsidiary)

• Lines of business: Parent company risks only

• State requirement: $500,000

• Actual capital deployed: $2.2 million

• Time to first policy: 8 months

• Burn rate: $140,000 per month

Notice the pattern.

Even the captive—the simplest, cheapest structure—required more than four times the minimum capital.

The commercial carriers raised six to seven times the minimum.

Breaking down the seven-figure startup budget

Where does all this money go?

Let me walk you through a realistic pre-launch budget for a mid-sized property and casualty carrier.

I am basing this on actual financial statements from a company that launched in 2022. I have rounded the numbers and simplified some categories, but the proportions are accurate.

1. Actuarial and rate filing ($250,000 – $600,000)

You cannot sell insurance without approved rates.

To get approved rates, you need an actuarial study that proves your rates are adequate, not excessive, and not unfairly discriminatory.

A qualified actuarial firm will charge between $50,000 and $150,000 for the initial study. Then you pay legal fees to file the rates with every state where you plan to operate.

“Founders always underestimate the actuarial work,” says David Kohler, who has advised three insurtech launches. “They think pricing is just math. It is math, but it is math that the regulator will tear apart if you do not have the credibility of a recognized firm behind it.”

2. Legal and entity formation ($180,000 – $400,000)

Insurance law is not general corporate law.

You need specialists.

Your legal budget covers:

• Articles of incorporation and corporate bylaws

• Drafting of policy forms

• Regulatory compliance framework

• Licensing applications

• Contract review for vendors and reinsurers

Most insurance law firms require a six-figure retainer just to begin work.

3. Technology and core systems ($350,000 – $1.2 million)

You cannot run an insurance company on spreadsheets.

Well, you can. But you will fail.

Modern carriers need a policy administration system, a claims management system, a billing platform, a document management system, and often a customer portal.

You have two choices here.

Buy a licensed platform. This costs $200,000 to $500,000 in implementation fees, plus annual licensing of 10 to 20 percent of that amount.

Build your own. This costs $1 million or more and takes twice as long as you expect.

Most new carriers buy. Some very well-funded insurtechs build and immediately regret it.

4. Reinsurance ($500,000 – $2 million before you write a single policy)

Here is something that surprises almost everyone.

You have to buy reinsurance before you sell your first policy.

Reinsurance is insurance for insurance companies. It protects you if claims are worse than expected.

But reinsurers will not cover you unless you have capital, a credible business plan, and an experienced management team.

And they require payment upfront.

Your first-year reinsurance premium can easily exceed $1 million, depending on your lines of business.

5. Office and overhead ($200,000 – $600,000)

You need a physical office.

Not because you cannot work remotely. Because regulators require a principal place of business.

You need furniture, computers, phone systems, and professional liability insurance for your directors and officers.

You need accounting software, HR systems, and probably a part-time CFO until you can afford a full-time one.

6. Salaries before revenue ($1.2 million – $3 million)

This is the big one.

You need a president or CEO. You need a chief actuary or a qualified pricing actuary. You need an underwriter, a claims manager, a compliance officer, and administrative staff.

These people expect to be paid every two weeks.

Most carriers take 12 to 18 months from incorporation to first policy sold.

That is 18 months of salaries with zero premium coming in the door.

Captive insurers: the lower-cost entry point

If $20 million sounds impossible, there is another path.

A captive insurance company is an insurer formed by a parent company to insure its own risks.

You do not sell policies to the public. You insure your own business.

Why do companies form captives?

Three reasons.

First, tax advantages. Premiums paid to a captive are often tax-deductible.

Second, access to reinsurance markets that individual companies cannot reach.

Third, control over claims and risk management.

The cost to start a captive is substantially lower.

I should add that captives require ongoing administrative work. You still need actuarial opinions. You still need audited financial statements.

But the barrier to entry is real estate, not the stratosphere.

The three hidden costs that destroy insurance startups

Every insurance founder I interviewed mentioned the same three surprises.

I am listing them separately because they are not in any budget template.

Hidden cost #1: The examination fee.

When you apply for a license, the state insurance department will conduct an examination of your company.

You pay for this examination.

Not a flat fee. You pay the regulators’ actual costs. Their travel. Their hotels. Their time billed at an hourly rate.

I have seen examination fees exceed $150,000.

Hidden cost #2: The second actuarial opinion.

Your actuarial study is fine. The regulator reads it and says: “We want a second opinion from a different firm. At your expense.”

This happens more often than the industry likes to admit.

Hidden cost #3: The delay burn.

Your application was supposed to take nine months. It takes fourteen.

You are still paying salaries. You are still paying rent. You are still paying the law firm to answer follow-up questions.

You have collected zero dollars in premium.

This is why you need three times the minimum capital. Not because the rules require it. Because time requires it.

Domicile selection: where should you incorporate?

Your choice of domicile—the state where you incorporate—is one of the most consequential decisions you will make.

It affects your minimum capital requirement, your ongoing tax burden, your regulatory relationships, and your access to reinsurance.

South Dakota and Illinois have earned reputations as efficient, business-friendly domiciles.

New York and California have earned reputations as thorough, demanding, and slow.

Choose accordingly.

The funding gap: why venture capital rarely works for insurance carriers

This is a sensitive topic.

There have been well-funded insurtech carriers that launched with $100 million or more and then failed.

There have also been successful carriers that started with patient family capital and are still profitable decades later.

The problem with venture capital.

Venture capital expects 10x returns in five to seven years.

Insurance companies do not work on that timeline.

It takes years to reach underwriting profitability. It takes even longer to build the loss reserves and surplus necessary to write significant premium volume.

VCs get impatient. They push for growth. In insurance, pushing for growth too fast usually means inadequate pricing.

Inadequate pricing means losses.

Losses mean regulatory intervention.

“If you take VC money, you are signing up for a timeline that is fundamentally incompatible with insurance,” one founder told me. “We bootstrapped. It took twelve years to become a real carrier. We are still independent and we are still profitable.”

That is not to say it cannot be done. Several successful insurtech carriers have navigated this tension.

But you should go in with open eyes.

What the regulators actually look at

The insurance department does not just count your money and hand you a license.

They evaluate five things.

One: The competence and character of the management team.

Have you run an insurance company before? Have you been sanctioned by any regulator? Do you have a qualified actuary and underwriter on staff?

If the answer to the first question is no, you need a very strong answer to the others.

Two: The adequacy of your capital relative to your business plan.

Your business plan says you will write $50 million in premium in year three.

The regulator will calculate whether your capital is sufficient to support that volume. If it is not, they will ask you to raise more or revise your plan downward.

Three: The reasonableness of your rates.

Rates must be adequate. They cannot be so low that you will inevitably become insolvent.

This is where new carriers sometimes struggle. They want to offer lower rates to attract customers.

The regulator wants to make sure those lower rates do not threaten the company’s solvency.

Four: The fairness of your policy forms.

Your policies must be clear and not contain hidden traps for policyholders.

Some states are extremely particular about policy language. You will go back and forth several times.

Five: The availability of reinsurance.

You cannot be licensed without a reinsurance program.

The regulator will ask for a list of your reinsurers and the terms of your treaties. If your reinsurers are not rated A-minus or better, you will have problems.

Timeline: from idea to first policy

Let me give you a realistic timeline.

Months 1–3: Planning and assembly

• Refine business plan

• Identify domicile

• Engage legal counsel and actuarial firm

• Begin recruiting key executives

Months 4–8: Preparation

• Draft policy forms

• Complete actuarial study

• Prepare rate filing

• Negotiate reinsurance terms

• Raise capital

Months 9–14: Application and review

• Submit license application

• Respond to regulator questions

• Pay examination fees

• Host regulatory onsite visit

Months 15–18: Approval and launch

• Receive license

• Finalize vendor contracts

• Train staff

• Write first policy

This is the optimistic timeline.

Delays happen.

A change in the regulator’s leadership can pause all applications for three months. A question about your reinsurance structure can require six weeks of negotiation.

Patience is not optional. It is mandatory.

Ongoing costs: what it takes to stay licensed

Getting the license is expensive.

Keeping it is also expensive.

Annual state assessments. Insurance departments fund themselves through assessments on the companies they regulate.

You will pay a percentage of your premium volume to the state. Usually a tiny percentage. But it adds up.

Guaranty fund assessments. Every state has a guaranty fund that pays claims if an insurer becomes insolvent.

You are required to participate.

These assessments are unpredictable. When a large insurer fails, the assessments spike for everyone else.

Audited financial statements. You must file annual audited financials with the state.

A full insurance company audit costs $50,000 to $150,000 depending on complexity.

Ongoing actuarial work. Your rate filings do not stop. You must regularly demonstrate that your rates remain adequate.

Compliance staffing. You need someone whose full-time job is tracking regulatory changes and ensuring the company remains compliant.

This is not optional.

Is it worth it?

I have given you a lot of numbers.

Let me step back and answer the question behind the question.

Is starting an insurance company worth the cost and the difficulty?

For most people, no.

The barriers exist for good reason. Insurance is the business of promises. When an insurer fails, real people lose their homes, their businesses, their financial security.

Regulators are not trying to keep you out. They are trying to protect the public from companies that are not ready.

But for the right person with the right plan and the right capital, it is absolutely worth it.

The insurance industry is massive. It is also surprisingly resistant to change.

If you see a risk that is poorly served, a customer segment that is overcharged, or a product that is outdated, there is room for something new.

Just bring enough capital.

Important note before you start

The numbers in this article are accurate as of early 2025.

But insurance regulation changes constantly. A state that is efficient today may have a backlog tomorrow. A captive domicile that is popular now may fall out of favor.

Do not rely solely on this article to make capital decisions.

Hire a specialist lawyer. Hire a qualified actuary. Talk to at least three people who have done what you are trying to do.

The cost of professional advice is substantial.

The cost of getting it wrong is catastrophic.

Frequently asked questions

Can I start an insurance company with one million dollars?

In some states, the minimum capital requirement for a captive insurer is $250,000, and you could plausibly start a simple captive with $1 million total capitalization.

For a commercial carrier writing business for the public, $1 million is not enough. You will not be approved.

How long does it take to get an insurance license?

Six months is extremely fast. Twelve to eighteen months is realistic.

Do I need to be in the insurance industry already?

It helps enormously. Regulators want to see experienced management.

If you do not have insurance experience, you need to hire people who do. That is expensive but necessary.

What is the cheapest state to start an insurance company?

For captives, Vermont, Delaware, and Arizona are competitive. For commercial carriers, South Dakota, Illinois, and Texas have reasonable minimums and efficient review processes.

Can I start an insurance company online?

You can sell insurance online. But you must be licensed in each state where you sell. The licensing process requires a physical office and a significant capital deposit.

Do I need to be licensed in all 50 states?

Not at the beginning. Most new carriers start in one state or a small region. You expand as your surplus grows.

Additional resource

National Association of Insurance Commissioners (NAIC)

The NAIC website provides model laws, financial reporting standards, and links to every state insurance department.

[Visit the NAIC website →] (https://content.naic.org)

This is the single most reliable free resource for understanding insurance regulation in the United States.

Conclusion

Starting an insurance company requires between $2 million and $30 million depending on structure and scope, with commercial carriers needing substantially more than captives. Regulatory approval takes 12 to 18 months, and most of your capital will be spent on salaries, actuarial work, legal fees, and reinsurance before you write your first policy. The barrier to entry is high by design, but for founders with a clear thesis and sufficient patience, the opportunity remains real.