The Truth: Pros and Cons of an Independent Insurance Agent

How do insurance agents work? What are the pros and cons of an independent insurance agent? Will any parent company tell you the truth about what it's like to work as either a captive agent or an independent insurance agent?

There are two types of insurance agents: independent agents and captive agents, and there are pros and cons to each method of selling insurance. Although each parent company offers an opportunity to sell products as an insurance agent, they won't necessarily tell you the whole truth about what it is like to work as an agent. If you are lucky enough to be related to an insurance agent, maybe you've noticed some of the pros and cons for yourself regardless of whether they are an independent insurance agent or a captive agent. However, it is often difficult to know what goes on behind closed doors.

In this article, we want to explain the real pros and cons of an independent insurance agent and a captive agent. Why? Because we want you to be able to make an informed decision before switching careers. It's your life and your investment. You should have all of the information you need on how agents work before making the switch. So, let's get started!

Independent Insurance Agents vs. Captive Agents

First, let's start with some basic information for anyone who is just starting their journey. What is a captive insurance agent? What is an independent insurance agent? What is the difference between the two when it comes to selling insurance products?

A captive insurance agent works for a single insurance company, also called a carrier. Their insurance business can provide insurance products only from the parent company. The insurance rates they provide to their clients are based on what the parent company sets and, often, the clients' credit scores (for certain insurance products such as car insurance). An example would be a captive agent who works only with State Farm.

An independent insurance agent is sometimes called a broker, although there are some differences. They can sell products from multiple insurance companies. The benefit of working in this way is that an independent insurance agent can shop around for their clients. So, if a client's rate for car insurance seems too expensive with one provider because of their credit score, they can check with another agency. They could also join Modern Brokers of America or another brokerage firm to make looking for more clients easier.

Benefits of Being an Independent Insurance Agent

Independent insurance agents aren't bound to one parent company. They have more control over how they run their business. Independent insurance agency owners get to make all of the decisions related to how the business operates.

An independent insurance agent can shop around with insurance companies to offer their clients the best health insurance, car insurance, and life insurance products to meet their needs and budgets. No more offering just one brand of insurance products and hoping clients are happy with the rates. Clients often love working with an independent agent because of their ability to sell products from different insurance companies. It makes them feel like they're getting custom service (and they are!)

These techniques don’t focus on generating the sale. Instead, they aim to build trusted relationships that create a natural flow of sales to your insurance business through the following four basic steps:

Benefits of Being a Captive Agent

There are benefits of being a captive agent. A captive agent has lower marketing expenses. All you have to do is turn on your television or radio to find an ad for State Farm or other major insurance carriers. Some captive agents do their marketing as well, but a captive insurance agent gets additional brand recognition because of the parent company's marketing budget.

Captive insurance agents also receive carrier support. Carrier support is a broad term that encompasses services provided by the parent company for the captive agency. For example, the insurance company provides the captive agent with 24/7 customer service and claims for their clients. They also offer ongoing training opportunities for their agents.

Working with insurance companies as a captive agent also provides instant brand name recognition. This provides the element of trust for clients. There's little need to build up the trust element with new clients because they associate the agency with the parent company's name.

Disadvantages of Being a Independent Insurance Agent

While there are many significant elements associated with working as an independent insurance agent, there are some disadvantages that you should be aware of before deciding to invest in this type of insurance business.

There is a higher startup cost involved. Because an independent insurance agent works with more insurance companies to offer more insurance products, they must maintain more affiliations. This requires more startup capital than becoming a captive agent. Then, you will need to consider where your business will operate as well. As an independent agent, you are fully responsible for what it will cost for you to open your agency, get your licenses (you will need a license for each type of insurance you want to sell), and either buy a book of business or start marketing.

And marketing is a must. Unlike a captive agent, you won't have the name of a parent company on your side to provide instant brand name recognition. You also won't have their advertising dollars (or their advertising department). Building a profitable book of business is critical. You can't do that without marketing your insurance business and insurance products.

The more insurance carriers that an independent agent can get approved by, the more insurance products with better rates they can offer to their clients. However, to expand their insurance business, it is the agent's responsibility to take this step. It isn't always an easy (or quick) step.

Disadvantages of Being an Captive Insurance Agent

While there are several advantages of being a captive insurance agent, there are also several disadvantages. One is a lower commission when they sell products. Because they cannot shop around for insurance products, a captive agent is bound to just the parent company. They are paid whatever the parent company offers on the product. The same is also true with the profit share.

Captive insurance agents also have a limited insurance product selection. It doesn't matter if they offer health insurance, car insurance, or life insurance. Whatever type of insurance they offer is limited to only the parent company. If the insurance rates of their clients go up or if a prospective client doesn't like the rate offered, they could go somewhere else.

Captive insurance agents generally cannot make their own business decisions despite being business owners. They are relegated to following the rules set by the parent company. This includes how they market their business. They may even need to submit their ads to the parent company for approval before using them.

What Are Market Access Providers?

Independent agents have a great way to continue growing their agencies and learning more about how to serve their clients better. It not only accentuates the positive aspects of being an independent insurance agent. It also helps each independent insurance agent deal with the disadvantages (such as learning how to market their agency better).

Through a Market Access Provider, independent agents work together to negotiate better deals with insurance carriers, support each other with training, offer mentoring opportunities, profit sharing opportunities, and more.