Thinking of starting or buying an insurance agency? Or maybe you already are an insurance agency, but you’d like to weigh out the pros and cons of which path is right for you going forward. Let’s run through some of the basic differences, along with pros can cons of each.
Generally, a captive agent represents one insurance company exclusively while an independent agent represents multiple insurance companies. That’s essentially the biggest distinction, but like anything, the devil is in the details. Those details include how agents are paid, how they market, how they get leads, and more. In determining which path might be best for you, you need to know yourself and be honest about your work strengths, weaknesses, style, and temperament. There really are no right or wrong answers.
A captive agent
A captive agent is employed by and earns a salary and benefits from the insurance company that they represent. Sometimes, they are an independent contractor paid by some combination of salary, commission, and bonus. Regardless of the specific compensation scheme, they sell and service only the products available through the insurance company they are representing. If you are new to the business, lack investment capital, value operational support, are attracted to the prospect of affiliating with a stellar, national brand and dislike having responsibility for staff, administration, and operations, this might be the way to go.
The pros of being a captive agent vs an independent agent
- Fewer start-up costs and investments are required.
- The insurer generally provides excellent training in products and services.
- You have administrative and technology support.
- Large insurers who work through captive agents generally fund national promotional campaigns online and off.
- You gain the benefit of brand association and recognition.
- The insurer generates and passes on leads.
- You assume less risk.
- Income is a bit more reliable and consistent.
The cons of being a captive agent
- You have access to a limited scope of products, those sold by the carrier you represent.
- Generally, a captive agent earns less in commissions and has less upside.
- The insurance company owns the book of business.
An independent agent
An independent agent represents multiple insurance carriers and serves as a go-between or intermediary between insurance company and customer. The independent agent earns commissions and bonuses, or in Wall Street parlance, “you eat what you kill.” Do you have an entrepreneurial streak? Are you willing to put up some of your own capital to get started? Do you like challenges, variety, and setting your own goals? Have you always wanted to be your own boss? This might be for you.
The pros of being an independent agent vs a captive agent
- You have a diversified income source across multiple carriers.
- The capacity to offer your clients competitive quotes across multiple carriers.
- Product flexibility – source the product your client needs. Or, If the price goes up, find another carrier for your client.
- You own the book of business, which can accrue in value. It’s a saleable asset.
The cons of being an independent agent
- You self-fund your benefits and training.
- Marketing campaigns and leads are self-generated or purchased.
- Administrative assistance and technology support must be hired.
- You compete against large national brands and budgets.
Captive agents vs independent agents vs direct access
Today, the landscape is no longer comprised of just the captive agent vs the independent agent. Just as it has with all other industries, the Internet has disrupted the insurance distribution system and the competition has expanded to include direct or Internet-based access to insurance products.
Insurance products can be quite complex and most buyers “don’t know what they don’t know.” It’s not all about price, it’s balancing the cost-value of managing exposures and risks. All insurance agents are licensed professionals who’ve studied and earned credentials from their state insurance authority in the lines of insurance hey represent–that’s one commonality, and a strength that should be cited in marketing. Buyers can benefit greatly by this level of financial expertise and experience. In purchasing insurance, any agent–captive or independent–is better than no agent!
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