Monday, August 07, 2017

Is It Better to Be a Captive or Independent Insurance Agent?


As you start your insurance career, one of the questions you will eventually ask is whether it's better to be captive or independent insurance agent. In this article, I'm going to talk about the differences between these two types of agents. I've been both a captive and independent agent and so I'll give you my take from both sides and maybe that will help you decide what you want to do.

What is a Captive Insurance Agent?

A captive agent is an agent that has a contract to work specifically through one and only one agency. They can only write insurance policies that agency allows them to write and those policies have to be written through them.

What is an Independent Agent?

If you are an independent agent on the other hand, you are in control of what companies you want to work with it. You can work direct with an insurance company, partner up with other agents and general agents or write business through independent marketing organizations (IMO's).

Captive vs Independent Agent

Captive agencies are more like traditional employers. An independent agent is like owning your own business. So let's talk about some of the other differences between captives and independent agents.

  • Salary and commission With a captive agency, you might be paid a salary or have an incentive plan that helps you financially while you are getting started. As an independent, you'll be straight commission only. Most likely, that commission will be paid as earned. This means you don't get paid until your client pays the insurance company. However, as an independent, you'll receive the total commission you earn. Captives share their commission with the agency they work with.
  • Formal training and assistance Agencies that hire captive agents may have a good training program or other agents that can mentor you. If you are and independent, you'll have to learn how to do everything on your own. 
  • Expenses Being an independent agent means you'll be responsible for paying everything. As a captive, you might have help paying for your everyday business expenses. They may even pay for the cost of your life insurance license and e&o insurance.
  • Benefits At a captive agency, you might be able to participate in benefits like retirement plans or health insurance that your agency contributes to. Independent agents on the other hand have to pay for all of that.
  • Existing clients If you are lucky, you might be handed a book of business to service if you start at a captive agency. But as an independent, you'll need to build everything from scratch.
  • Ownership Independents own their book of business whereas captive agencies own their clients not the agent. This means if you ever think you might want to go from being a captive to an independent, you most likely will have to start the new agency from scratch.
  • Control If you are an independent, you have complete control over how you want to run your business. As a captive, you surrender that control to a large degree to the agency you work for.
  • Competitive advantage I think you could argue that an independent has a competitive advantage in some cases because they can make decisions faster sometimes. They also don't have the overhead a captive agency might have. In addition, you could argue that a captive agency might have a competitive advantage if for example, they have name recognition on their side.
  • Freedom Probably the best thing about an independent agent is the freedoms it brings. As a captive, you can still have a lot of freedom, but will still have to always answer to the agency for somethings. Things like quotas, expenses and other things like who you can and cannot write business through.
Those are some of the differences I see in between captive and independent agents.

Which is Better - Captive or Independent?

Whether you choose to go as a captive or independent will be tied somewhat to your tolerance for risk. A captive might provide you with a better starting financial safety net or might teach you the business quicker than going out on your own. And if you are more risk averse that will appeal to you.

Many agents choose a captive because that's how they were introduced to the idea of being an insurance agent. Agents also might be drawn to the training programs captives have in place. Again, this would also appeal to you if you prefer an agency to help get you going. This is especially true if you need help getting appointed to insurance companies that they work with like in the property and casualty business. In the P&C business, you might not be able to get appointed to certain insurance companies without their help.

An independent agency on the other hand is appealing to those who want complete ownership and control of their operation. People with strong independent personalities and higher risk tolerance would also be better suited to going the independent route.

Which is better will also be determined a lot by your financial situation at the time you begin. It's a lot harder start as an independent with no resources although it can be done.

How I Got Started and My Experience with Captives and Being Independent

I first started with one of the big mutual insurance companies as a captive. I answered a help wanted ad and didn't really know that being independent was an option. I worked at that insurance agency for five years before going out on my own.

Once I became an independent, I still worked with another general agent. But the difference was that I was more in control of what I was doing than before. To me, having more control over how I worked with my clients made a huge difference to me personally as far as mindset.

Since I think the training programs at the big mutuals and some other captives are overrated, I'd say the hardest part of being independent is just like any other business you might start. At first it's hard because you aren't making anything and you have to build every aspect of it.

If I had to choose to start my career over again, I'd definitely be an independent agent. That's because it suits my personality better. But my advice would be, be prepared to struggle financially to begin with.

The reality of the insurance business, it's not so much how much you know about insurance as it is how many people you meet with. If you don't become an expert on how to find clients, then either is a bad idea.

Conclusion - People Buy You

In the end, your clients are really buying you. If you trust the insurance agency or companies you are working with, they will too.

Insurance is a people business. What it comes down to is that people say yes to people they want to work with. So while name recognition and training are important and might get you in the door to talking with prospects, in the end they buy you.

For that reason, I always suggest people be independent agents over captive agents all day long.

Let me know in the comments how you started and what your feelings are about which you think is better, captives or independent agents.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.